Saxo Bank analysts defended the view that “if the cycle of wage pressures gets out of hand, inflation could rise 15% in 2022 so use gold as a hedge” and listed their gold price forecasts. Inflation remains one of the biggest threats to the US economy. Analysts at Saxo Bank see the potential for consumer prices to rise 15% in 2022, dwarfing the last major inflation environment seen in the 1970s. Details cryptocoin.com‘in.
Gold price predictions
The Danish bank’s inflation forecast is part of their annual Crazy Forecast, and while the forecast may seem extreme, it’s not as far off as some might expect. Last week, the US Consumer Price Index saw an annual gain of 6.8% in November; however, many economists point out that inflation is much higher than the government’s official reports. John Williams’ Shadow Government Statistics show that inflation is already at 15%, based on a methodology used before 1980. When inflation is calculated according to the 1990 methodology, inflation is over 10%. Christopher Dembik, head of Macro Analysis at Saxo Bank, said his forecast was based on wage inflation spiraling out of control, a scenario similar to that experienced in the 1970s. Dembrik said:
In the late 1960s, the US Federal Reserve and then Fed chairman McChesney Martin misjudged how hot they could manage the US labor market without fueling inflation. The mistake led to inflation expectations spiraling out of control, leading to a massive inflation expectation. There is a possibility of a wage-price spiral in the next decade. In 2022, the Federal Reserve and Fed chairman Jerome Powell is making the same mistake over and over again, mocking the traditional models of the Fed, as the economy, and especially the labor market, is severely scarce after the Covid pandemic. As the impact of Covid-19 wanes, it will return to work and fill some of the 10.4 million vacancies. However, this is absolutely wrong.
The Fed may lose control
Ole Hansen, head of commodities strategy at Saxo Bank, said the likelihood of the Federal Reserve losing control over inflation will continue to support gold prices through 2022. While it may be an overestimate for the CPI to rise to 15% next year, the reality is that the US central bank will lag well behind the inflation curve, he said. “If the Fed tries to get ahead of the curve, it creates a new recession,” Hansen said. Hansen also spoke of an environment in which short-term rates will rise faster than the long-term trend and real rates will remain low in the coming year. And he said a sharply inverted yield curve could be seen, meaning that this is a good environment for gold.
Currently, the gold market is suffering from a lack of investor interest as the Federal Reserve begins tightening its monetary policy next year. There are rising market expectations that the US central bank will start raising interest rates in June, with a total of four increases next year. But Hansen said investors should focus on the bigger picture: “Increasing inflation will keep interest rates in negative territory even if the Federal Reserve raises interest rates. We can see that we could see a 25 or 30 basis point increase in real returns and that shouldn’t really impact gold,” Hansen said.
Hansen added that gold will not only benefit as real interest rates remain low, rising nominal rates will threaten stock market valuation and create a great safe haven for the precious metal. While Hansen doesn’t have an official gold price forecast for 2022, he said there is enough uncertainty in financial markets that the precious metal could hit new record highs above $2,000 an ounce. Hansen said: “Right now, we’re focused on raising Federal Reserve rates, but the whole question is, what kind of return level can the economy actually deliver? What will happen to the stock markets and how will growth be valued when interest rates start to rise.” It’s not just gold that Hansen is bullish on. He said he sees good potential for silver prices to rise in 2022 as the world continues to push for more green energy.
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