The US 10-year Treasury yields and dollar index (DXY) rose from yearly lows towards the end of January, while the precious metal held above $1,800. At the heart of gold’s resilience is the belief that the Federal Reserve is either ‘lagging the curve’ in tackling inflation or getting too tight, causing growth to fall, according to UBS. Gold forecasts and market comments of analysts of giant banks cryptocoin.com compiled for our readers.
BofA analysts’ gold forecasts for 2022 show $1,925
Gold prices have remained resilient in the face of wide market volatility in recent weeks and have diverged somewhat from typical price drivers (bond rates and dollar index). US 10-year yields and DXY rose from their yearly lows towards the end of January, while the yellow metal managed to hold above $1,800. At the time of writing, spot gold was trading at $1,810.97, up 0.18% daily, according to TradingView data.
Despite the difficult macro backdrop of supply chain issues, rising inflation and ongoing pandemic risks, Bank of America (BofA) strategists note that some of the investment flows into gold have been very flexible. In a research note from BofA analysts at the end of January, gold forecasts for 2022 point to the following levels:
Buried below headline inflation, interest rates and currency movements, there are significant divergences that add to the temptation to keep the yellow metal in a portfolio and support our gold price forecast of an average of $1,925 for 2022.
Gold forecasts by UBS strategists are bearish for the second half
Also, at the heart of gold’s resilience is the belief that rising demand for portfolio protections and the Federal Reserve’s fight against inflation is either ‘lagging the curve’ or tightening too tight, causing growth to slump. UBS Chief Investment Office strategists highlight that gold’s ‘tried and tested insurance features’ are shining again against other common portfolio diversifiers, including digital assets like Bitcoin:
On the one hand, the Fed’s overall stability against a hawkish pivot, money market participants’ aggressive shift to multiple US rate hikes in 2022, and higher US real interest rates, such as US 10-year TIPS bonds, have surprised some. Alternatively, the resilience of the yellow metal is largely in line with our estimate generated by our fair value model. It currently marks a value of around $1,750. That’s a modest $50 discount for the spot.
UBS’s models show that high market volatility so far this year has been a major pillar of support for gold prices, as the VIX index indicates. “For example, if we add the long-term average value of the VIX to 19.5, that would indicate a gold price of around $1,575,” said UBS strategists Wayne Gordon, Giovanni Staunovo, and Dominic Schnider. They state that increased demand for hedges supports their estimate of $1,800.
However, UBS maintains its expectation that gold will fall to the $1,650-1,700 range in the second half of 2022. The Swiss bank’s view is that risk sensitivity will increase due to the dual threat of the Omicron variant and inflation pressure. UBS advises its customers:
We advise clients to reduce tactical allocations and protect themselves from the downside of strategically held assets.
“The ability of gold to rise above $ 1,800 depends on these”
For gold to rise above $1,800, markets may have to lose some faith in its plans to tighten central bank policies, according to Russ Mold, investment director at British stock market platform AJ Bell. In a note on Tuesday, Russ Mold suggests that this could happen if the economy enters a recession, explaining his reasoning as follows:
As the combination of global debt and high interest rates proves to be too much, policymakers are forced to return to lowering borrowing costs and adding to QE (quantitative easing) long before inflation is reined in.
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