According to the LBMA/LPPM Global Precious Metals Conference 2022, gold is being pulled in different directions by opposing drivers. This creates a confusing environment for investors. In this uncertain environment, analysts’ forecasts for gold are for a limited rise.
“You can’t expect gold to be better in this environment”
cryptocoin.comAs you follow, the market is mixed with continued high inflation, continued dollar strength and strong gold ETF outputs. On top of that, there is a very strong physical demand. But until markets see a pivot from the Fed, gold won’t be able to find room to move higher.
In the current market environment, gold institutional investors are not responding directly to the latest inflation figures or future inflation expectations, says James Steel, chief precious metals analyst at HSBC Securities. In this context, the analyst makes the following statement:
Gold institutional investors are not reacting too much to the latest inflation data. They are responding to the expected monetary response to these data. And it’s getting tight right now. The Fed and other central banks continue to tighten. This gives strength to the dollar. You can’t expect gold to get better as a result. However, it did relatively well, especially in non-dollar currencies.
Which direction are conference attendees’ gold predictions?
James Steel expects the dollar, which has put heavy pressure on gold in USD terms this year, to remain strong next year. But only up to a point, he adds. Gold forecasts from the conference’s survey are that gold will rise 10.7% in 12 months to $1,830.50. James Steel makes the following assessment on the subject:
We can probably all agree that the gold market will be higher. But everything has returned to this persistent dollar strength, which effectively masked high gold prices. Conference attendees expect the dollar to remain strong. But only up to a point next year. It’s possible that this is some breathing room for the gold to recover.
Some of the potential drivers to watch will be continued globalization trends, which will keep inflationary pressures high for longer and increase the production costs of precious metals. Analysts also point to the lack of investment on the mining side, which will be a potential problem on the horizon. They see it as likely to affect prices.
Logistics and shipping costs for precious metals
The skyrocketing shipping costs for precious metals were another popular topic during the conference. Analysts say global freight costs have increased fivefold in less than a year. They also note that it is now cheaper to fly silver instead of shipping it by sea. This has led to higher premiums that consumers are willing to pay. Suki Cooper, general manager of precious metals research at Standard Chartered, said:
Previously, 73% of ships were on time. Now it is closer to 35-40% and more costly. To ensure a more reliable delivery of the metal, consumers were willing to pay this high cost.
Physical market, gold forecasts and Fed pivot
Analysts say silver demand is very strong in India this year as well. They also state that they aim to complete the year with around 10,000 tons of imports, compared to 6,000 tons in previous years. However, James Steel points out that this ‘enormous underground demand’ for precious metals has not translated into higher gold or silver prices due to ETF liquidations. He adds that this is partly due to macro factors such as interest rate hikes and the strength of the dollar.
Meanwhile, the physical market has managed to absorb most of these liquidations. This has caused analysts to question where the gold price would be without this strong physical demand. Suki Cooper expects continued gold-backed ETF outputs that will put pressure on prices for the rest of the year. Next year, Standard Chartered forecasts a small net inflow. Cooper notes:
The turning point comes when the Fed returns. The strength of the dollar is likely to continue over the next few months.
However, analysts agree that ETF flows have a significant impact on the price of gold.
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