Overconfidence and apathy towards risk dominated investor sentiment in 2021. But everything could change in the new year, as the Federal Reserve tightens monetary policy, reducing liquidity in financial markets, according to one precious metals fund manager. Peter Grosskopf, CEO of Sprott Inc., provides market comments and gold price forecasts. cryptocoin.com We have prepared for our readers.
According to the famous CEO, the probability of all the right conditions for gold is quite high
Peter Grosskopf says that despite gold’s struggles in 2021, the precious metal is still an attractive hedge product to hedge against rising risks in equity markets. Although the famous CEO does not expect stocks to fall into a bear market, he states that the unprecedented run in the last two years seems to be slowing down. He adds that slowing stocks in this direction may also drag down economic growth and force the Federal Reserve to be less aggressive in monetary policy this year.
The famous CEO states that an important risk for 2022 is that investors underestimate how the Fed’s monetary policy will affect market conditions. The Central Bank will end its monthly bond purchases in March. At the same time, markets are pricing in four rate hikes starting in March this year. However, expectations are rising that the Fed will raise interest rates by 50 basis points in March and shrink its balance sheet before the end of the year. Peter Grosskopf notes that the last time the Fed started to shrink its balance sheet, the markets did not react well and makes the following assessment:
The Fed is now talking about doing three things in a row. They talk about rate hikes and starting a balance sheet shrinkage. But they are only halfway through the first step. The odds of achieving this without some sort of market correction are very slim. The odds of it happening to all the right conditions for gold are pretty high. And let’s not forget that inflation is still very hot.
“We will see an explosive rebound after a slow rally for the gold price”
Looking at inflation, Peter Grosskopf says he expects real interest rates to remain low, even as it continues to rise from historically negative levels last year. Last month, the US Consumer Price Index rose 7% year-on-year and inflation is at its highest level in 40 years. The famous CEO thinks that inflation will not decrease until at least the second half of the year and explains it as follows:
But it doesn’t matter when inflation pressures begin to subside. It still hurts your purchasing power a lot. This could force the Fed to change its plans as it slows growth.
As for Sprott’s prospects for gold in 2022, Peter Grosskopf says prices could return to record highs by the end of the year. Noting that gold prices decreased by only 11% compared to the highest levels of August 2020, the famous CEO makes the following comment:
If there is a broader market correction, I think such a move can be made. I think we’re seeing a slow rally until people get worried, and then we’re going to see an explosive jump.
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