Gold price forecast for 2022 and Coming Years

Gold is one of the oldest known precious metals and has been used as a form of currency and jewellery for centuries. It has also been used as a form of store of value, meaning that it is not easily devalued. The price of gold is influenced by a variety of factors, including global economic conditions, interest rates, geopolitical events, and physical demand from investors. Max Warren Barber, CEO Sion Trading Fze will tell each of these factors and discuss how they influence the price of gold.

Global Economic Conditions

Max Warren Barber says that the global economy is one of the most important factors that influence the price of gold. The market for gold is very complex and highly decentralized, meaning that there are a large number of participants who can affect the price. Changes in global economic conditions can cause investors to increase or decrease their demand for gold, which in turn will affect its price. For example, if inflation starts to rise rapidly worldwide, people may start to demand more gold as a form of protection against inflationary pressures. Conversely, if the global economy experiences financial instability or a recession, people may start to sell off their gold holdings in order to liquidate their assets.

Interest Rates

The gold market narrative has been driven by the contrasting effects of persistently high inflation and central banks raising interest rates in response.

With the US dollar recently hitting a 20-year high and Treasury yields rising above 3.3%, gold prices dropped to around $1,700 an ounce, as the US Federal Reserve (Fed) looks set to continue aggressively hiking interest rates, especially in light of higher-than-expected inflation numbers released on 13 September.

Fed chair Jerome Powell has stated the central bank will “use its tools forcefully” – likely setting up an anticipated rate hike at the next Federal Open Markets Committee (FOMC) meeting next week. 

The precious metal is down over 3% over the past month, having erased all the gains it made earlier in August. The gold price remains well below the $2,000 level seen in early March.

In the past month, a weaker US dollar has provided the commodity with positive short-term momentum, but the fundamental reason for most analysts not having a bullish longer-term perspective on gold – rising US Treasury yields 

What are the prospects for the gold market for the rest of the year, given the current macroeconomic and geopolitical environment? Should you invest in gold now?

In this article, we look at the recent drivers and gold price predictions from commodities analysts.

Gold vs USD

As the markets opened following the 4 July weekend in the US, the gold price dipped below the $1,800 mark for the first time since early February. Gold tends to trade in an inverse direction to the US dollar, as it becomes more expensive for buyers with other currencies and does not yield interest.

 The commodity continued its decline into mid-July, marking the longest losing streak for gold since November 2020, after fresh signs of accelerating inflation encouraged bets that the Fed will take further aggressive steps to tame price increases.

 The commodity fought back for modest gains, but as of 14 September 2022, spot gold prices have inched down to $1,700 per ounce – the lowest level in over two years.

 The price of gold has been largely influenced by a stronger US dollar (DXY), as the Fed looks set to raise interest rates at the next FOMC market meeting next week.

The dollar has benefited from the uncertain macroeconomic environment, with concerns about high inflation, the prospect of recession, slowing growth in China and the impact of the Russia-Ukraine war prompting investors to sell other assets in favour of holding dollars.

The US Dollar Index (DXY), which measures the performance of the dollar against a basket of other currencies, recently surpassed the 110 mark milestone – its highest level since June 2002.

climbed to a high of $2,043.30 on 8 March, a rise of 13.5% from the $1,800 level seen at the start of the year, as the Russia-Ukraine war escalated. That was close to the all-time high in dollar terms seen in August 2020 – above $2,070 – and a new record in euro terms.

The Fed has hiked interest rates four times so far in 2022. The Fed implemented a 25-basis-point hike in mid-March, a 50-basis-point increase on 4 May, and two consecutive 75-basis-point rises on 15 June and 22 July – the biggest rate increase since 1994.

The US central bank is likely to raise borrowing costs faster and further than previously expected, after Consumer Price Index (CPI) data released on 13 September showed underlying inflation is continuing to grow, defying economists’ expectations. The CPI rose 0.1% in August on a seasonally-adjusted basis, according to a report by the US Bureau of Labour Statistics, showing growth of 8.3% year-on-year. 

The CPI is the most well-known indicator of inflation, measuring the percentage change in the price of a basket of goods and services consumed by households.

According to Reuters, markets are currently pricing in a third straight 75-basis-point interest rate hike that would lift the Fed’s current 2.25%-2.5% policy rate range to 3%-3.25%. Expectations also reflect one-in-four odds of a full-percentage-point rate rise at the upcoming FOMC meeting.

Nomura’s analysts reportedly believe that a 100 basis-point rate hike is the most likely outcome, predicting that the Fed will need to lift its policy rate to 4.5%-4.75% by February 2023. Notably, Nomura also called for a 100bp hike in July, which turned out to be wrong.

The central bank has shown no signs of easing on its current policy direction. At a gathering of top central bankers in Jackson Hole, Wyoming, on 26 August 2022, Federal Reserve chair Jerome Powell said the Fed’s “overarching focus” is 2% inflation, saying it would deliver it by “using [the Fed’s] tools forcefully”.

Powell’s speech appeared to be a clear sign of the Fed’s intent to bring runaway inflation in the US under control, further boosting the dollar against most major rivals and denting the market appetite for gold.

A recession would be supportive to gold prices, but the sharp increase in interest rates being used to tackle inflation has so far been limiting the upside for the precious metal.

There are many factors that can influence the price of gold, but it is important to remember that no one factor is ever determinant . So what do you need to know to make sound investment decisions? Gold is a valuable commodity that is often used as a store of value or investment. The price of gold can be influenced by all these factors according to Max Warren Barber and SION Trading FZE