According to MKS PAMP GROUP’s forecast, inflation, Federal Reserve and stock market volatility will be the top three drivers for gold prices in 2022. Nicky Shiels, head of metals strategy at MKS PAMP GROUP, explained the market assessments and the two scenarios for gold, $2,000 and $1,400. cryptocoin.com We have prepared for our readers.
Higher levels possible for gold prices, according to Nicky Shiels
Stating that most analysts do not agree with the downward trend of gold from here on, the head of Strategy, Nicky Shiels, makes the following statement:
Gold is the arbiter over the Fed, and the Fed has a policy flaw (either widespread inflation or an aggressive walking cycle that increases the risk of a recession) that is currently well behind the inflation curve.
Nicky Shiels thinks that although gold has fallen slightly year-on-year so far, prices have the ability to move higher from here:
‘Inflation’ or ‘Fed policy error’ offers another rise to gold as its peak has not yet arrived. A troubled US labor market, future Covid variables and associated zero/low Covid policies are creating the persistent stagflationary forces needed for this opportunity.
“Negative real interest rates create supportive ground for gold prices”
There are downside risks to the economy as the Fed starts raising interest rates and shrinking its balance sheet this year. Talking about unsustainable US and global debt burden, asset bubbles, geopolitical problems, currency devaluation concerns and impending country crises, the strategist makes the following prediction for gold prices:
We have an average price forecast of $1,800 with upside risks as the released investor inflow could re-engage on stock market volatility and structural bull drives that often resurface in a Fed walking cycle.
Stating that gold is not in a bear market yet despite its disappointing performance in 2021, Nicky Shiels says that the precious metal has an innate recovery ability when it is in a consensus bear trend. The strategist explains the issue as follows:
Given the current US debt burden, interest rates are unlikely to rise fast enough to generate very high real positive rates. The continuation of negative or low real interest rates during Joe Biden’s administration creates a supportive ground for precious metals.
In what situations can bull and bear scenarios occur?
Nicky Shiels states that there are two alternative scenarios for gold in 2022, which involve rising to $2,000 and falling to $1,400. According to the strategist, bull and bear situations for gold cannot be further away as it is tied to a very unpredictable Fed walking cycle.
The strategist’s $2,000 gold scenario includes the Fed’s inability to control inflation, increased physical demand, stock market volatility, and new geopolitical risks. Nicky Shiels describes the macro environment in the $2,000 bull scenario, where he gives a 30% probability:
Supply chain bottlenecks or higher energy prices trigger continued inflation risks, triggering renewed investment inflows. A Fed policy error will accelerate the stagflation narrative and weaken the US dollar. And new geopolitical risks emerge in the US’s inward foreign policy.
The bear scenario, on the other hand, is due to cooler inflation, stronger US growth and weaker physical demand. Nicky Sheils draws attention to the following level for the bearish look, where he gives a 20% probability:
We recognize that if $1,675 is broken, all hope of inflation pricing will vanish and a new bear market will ensue, where it will lose its appeal as a monetary asset and inflation hedge.
Nicky Shiels’ downward outlook includes the following situations: The Fed’s tapering and walking cycle is aggressive, inflation continues until the middle of the cycle, and drives both real and nominal interest rates much higher and much faster. The risk of sustained reflation, improved global growth data, and higher inflation lead to a faster Fed walking cycle. Higher interest rates and the US dollar result in the removal of large-scale positions for gold. Central Banks become net sellers. Asia’s physical demand is disappointing.
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