According to the updated view of MKS PAMP, the gold price has the potential to reach $2,500 in 2022 and average $2,000 after seeing $200 moves since the beginning of the year.
Strategist does not think geopolitical issues will be fully resolved by 2022
cryptocoin.com As we covered in the news, the war in Ukraine and the sanctions against Russia significantly changed the geopolitical situation of the year. Nicky Shiels, head of metal strategy at MKS PAMP, comments:
It is necessary to make a few assumptions about the Ukrainian war. We do not think that this will be fully resolved by 2022 and therefore current precious metal prices will be significantly different from our original estimates earlier this year.
According to the strategist, the big change in outlook is due to the increased risk of recession, especially in light of upcoming Federal Reserve rate hikes and slower economic growth. Nicky Shiels explains her views as follows:
The upcoming Fed rate hikes, aimed at countering energy-driven price inflation, are putting the risk of recession on the agenda much faster than markets previously believed. The view of some central banks (especially the ECB) to put inflation concerns ahead of war concerns and the threat of additional sanctions from the West against Russia or China in particular for their tacit support of Russia is worrying.
“Our bullish position for gold is now our baseline”
MKS draws attention to the fact that the USA is facing double-digit inflation risk after the CPI reached 7.9% in February. “We initially thought a stagflation-like backdrop would support the bottom,” Nicky Shiels says, noting that the current ground is accelerating with a growing hyperinflationary depression in Russia and a risk of a recession for the region/Europe. The Strategist comments:
Structural and ongoing regime change, from globalism to isolationism and related inward trade policies, is exacerbated by this war and has an inflationary effect. There is also a worrying trend that the global monetary and payments system and wealth are now politicized and weaponised.
Therefore, MKS forecasts the gold price to average $2,000 this year, with an upside target of $2,500. Regarding the forecasts, Nicky Shiels says:
Given the first-quarter price action, our bullish position outlined in the original forecasts is now our baseline. It now averages $2,000 (previously $1,800) for 2022, with an upside price of $2,500. Its 2022 earnings are about 35% and match its 2020 annual gains at some point. The downside price expectation is $1,600 (previously $1,400).
Nicky Shiels: Gold pushes drive demand
Supporting the push for gold increases demand as investors seek to hedge against risks of geopolitical uncertainty, inflation and recession. The strategist explains this situation as follows:
The commodity thesis is back in vogue with the return from interest-sensitive, well-performing industries (eg big tech) to real assets, with their structurally under-possessed positions towards stocks and bonds.
Nicky Shiels underlines the following points:
However, given the inflationary outcome of this war and the risk of the US dollar being endorsed by the West at any time, it should be taken into account that non-Western central banks’ increasing gold holdings will have an upside effect.
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