We’re only in the second week of 2022, and gold prices are already facing two major hurdles to overcome: rising US Treasury rates and the Federal Reserve’s quantitative tightening (QT). And now Goldman Sachs is warning of four rate hikes this year and a second review of the balance sheet as early as July. Market evaluations and gold forecasts of master analysts who have different expectations about gold prices. Cryptocoin. com we have compiled it for its readers.
Analysts expect a more hawkish Fed in 2022
After hitting $1,830 in the first week of the year, things started to change after the hawk minutes of the Federal Reserve meeting in December were released. A ‘tight’ US labor market and troubled inflation could require faster rate hikes and balance sheet cuts, according to the minutes. “Participants generally indicated that it could be guaranteed to raise the policy rate sooner or more quickly,” the FOMC report said.
This represents a major shift in the monetary policy outlook, with big players like Goldman Sachs now pricing in an even more aggressive Fed. The latest research note from Goldman’s Jan Hatzius states that the U.S. central bank will raise interest rates four times this year and start shrinking its balance sheet as early as July:
With the risks shifting even earlier, we are pulling our runoff forecast from December to July. Given that inflation is probably still well above target at this point, we no longer think the start of the runoff will replace a quarterly rate hike. We continue to see increases in March, June, and September, and we’ve now added a hike to December.
“Gold prices are relatively good in the current macro environment”
In response to a more hawkish tone, bond yields have climbed to multi-year highs, putting pressure on gold price action. Britain’s five-year interest rates rose above 1% on Monday, reaching the highest level since March 2019. German 10-year rates were just three basis points away from positive territory for the first time since May 2019. U.S. Treasury yields also rose to 1.806 percent. Marc Chandler, chief market strategist for Bannockburn Global Forex, comments:
Many risky assets, stocks and cryptos continue to struggle as interest rates rise. The market moved in March to raise the chances of the Fed’s hike and is starting to lean towards four increases this year.
All eyes will be on Federal Reserve Chairman Jerome Powell’s nomination statement in the Senate on Tuesday, and Fed Chairman Lael Brainard’s nomination statement for the vice chair position Thursday. “The Fed’s balance sheet strategy is becoming more specific, and the Powell/Brainard confirmation hearings and speeches by several FOMC members this week will be watched closely for clues,” Marc Chandler comments.
Gold is sensitive to interest rate hikes and movements in bond yields, so Commerzbank analyst Daniel Briesemann thinks gold is doing relatively well given the current macro environment:
We believe the pressure is mounting for the Fed to raise interest rates. According to the statements of Fed Chairman Waller, the Fed, which will end its bond purchases in mid-March, will decide to increase interest rates at its meeting on March 15/16. U.S. bond yields soared to 1.8 percent after labor market data, hitting the highest level in almost two years.
Daniel Hynes: Gold may see $1,600 by the end of 2022
The latest inflation figures from the US are also a high priority for traders this week. December data will be released on Wednesday and market consensus estimates are that the consumer price index will rise to 7% year-on-year. Hussein Sayed, chief market strategist at Exinity Group, said: “Rising bond yields and the prospect of an earlier withdrawal from stimulus drove US stocks down last week as the S&P 500 had its worst start to a year since 2016.
The US CPI is expected to rise to 7.1% year-on-year, reaching its highest level in 40 years. Another surprise on the upside will put more pressure on bonds and raise interest rates.
Many gold analysts, including Capital Economics, ANZ and RBC, predict that gold will move towards $1,600 in 2022 as the Fed begins to tighten its policy. Daniel Hynes, senior commodity strategist at ANZ, explains his forecasts as follows:
We do not expect much rise from current levels. The $1,800 level is essentially our Q1 target, which is slightly above current levels. And then, in the second half of the year, gold is likely to loosen and hit $1,600 by the end of the year.
There are also analysts who are positive about gold prices
But some remain bullish on the yellow metal, citing greater geopolitical concerns and gold’s historically good performance at the start of previous rate hike cycles. Bart Melek, head of commodity strategy at TD Securities, said, “Even though the US central bank is on the way to increase interest rates, it will still provide an expansionary monetary policy,” and shares his predictions:
Central banks will continue to buy gold, as investors seek to diversify due to the higher perceived risk to stock market volatility, suggesting that gold speculators’ relative short positions could still push the yellow metal to $1,850 in the first months of 2022. However, the yellow metal is expected to trade at mid-$1,600 for most of the second quarter of 2022 as negative real interest rates along the curve keep gold from a complete rout.
Byron Wien, vice president of private wealth solutions at Blackstone, and Joe Zidle, chief investment strategist, say that gold will regain its hedge status in 2022 and may surprise with a 20% gain. Wien and Zidle make the following predictions in Blackstone’s annual ‘Ten Surprises of 2022’:
Gold prices will rise 20% to reach a new record high. Despite strong growth in the US, investors are seeking to hedge the perceived safety and inflation risk of gold amid rising prices and volatility. Gold is reclaiming its title as a haven for newly minted billions, even as cryptocurrencies continue to gain market share.