According to Jordan Eliseo, Perth Mint’s director of listed products and investment research, there are several very encouraging signs in a slower year for gold. The expert notes that the discouraging gold price movement, which fell 5.3% year-on-year, was offset by more important activities in the physical space. “This year has been quieter for Western investment markets,” says Jordan Eliseo, noting that not many people are selling, but that the same level of inflows has not occurred in the previous 18 months. Jordan Eliseo’s market assessments and expectations for the next year Cryptocoin. com we have prepared for its readers.
“There are several triggers that could push the gold price higher”
One-year price action needs to be placed in a broader context to get a more complete picture of where gold is headed. And it’s important to recognize that this precious metal rallied around 70% between the third quarter of 2018 and the third quarter of 2020. It went from under $1,200 to over $2,000 at that time, which is an extremely sharp move. Jordan Eliseo states that this situation is actually pre-Covid:
The gold price has performed incredibly well in the two years leading up to late 2019. I think this 15% decline from the all-time high in 2020 should be evaluated in this context.
Looking at the charts, Jordan Eliseo, who says that there are clear signs that the gold bull market is not over, makes the following assessment:
This correction period we’ve had over the last 12-13 months seems like a perfectly healthy, regular part of a long-term bull market. Besides the technical picture, there are a few triggers that could push gold higher in 2022. More specifically, what holds gold in 2021 could turn into what makes it even higher in 2022.
What is holding back the gold?
With inflation being one of the main fears this year, many investors thought gold would rebound based on its anti-inflationary properties. However, Jordan Eliseo notes that there are many conflicting messages, including the US stock market, the strong economic recovery, the US dollar and real interest rates:
We’ve seen more money flow into equity strategies this year than in the last 20 years combined. It was almost the best period on record for stocks. Therefore, gold was held back. DXY is up about 8% this year. This is a natural wind for gold. If you look at real interest rates, the yield on 10-year Treasuries went from about -1.1% to -0.6% over that period. And the economy has performed much better than most people expected.
Adding to these headwinds, the inflation narrative was seen as tentative until just a few months ago, which put pressure on gold. Even now, five-year breakeven inflation rates are still close to 2.5%-2.7%, meaning the market is pricing inflation closer to 2.5% instead of 6.5% five years later. This includes aggressive Federal Reserve tapering and expectations of multiple rate hikes. But it remains to be seen if inflation returns to a point closer to the Federal Reserve’s 2% target, Jordan Eliseo says:
One thing to remember is that gold has been doing pretty well after the Fed started its rate hike cycle. It wouldn’t surprise me that gold bottoms out and starts to rise as the Fed completes its rate cut faster than expected and starts raising interest rates. This may actually be what triggered the movement underneath.
Reverse signal for gold price
One of the opposite signals for gold bulls in the coming year is the general sentiment indicator, which points to a bearish outlook on the gold and precious metals sector in general. “The sentiment about precious metals is lukewarm at best,” says Jordan Eliseo, noting that this is actually a pretty good sign on the contrary, and that if everyone is super-dropped, it will likely be reflected in the price. The expert shares the following views:
Plus, where the stock markets are priced in, it’s almost mind-blowing that 60/40 portfolio strategies continue to bring back what they’ve had over the past decade. Investment managers executing these strategies tell their clients that the next decade probably won’t be very beneficial for mainstream financial assets. This helps in the discussion for portfolio allocations to gold.
gold price view how?
One way traders can try to determine gold’s potential for the next year is to look at how gold has performed in the past when inflation was above 3%. Jordan Eliseo states that when looking at gold in environments where inflation is above 3%, the average return on gold in US dollars in any given year is about 15% per year, and based on this, he points to the following level:
We are currently at $1,800 which means the 15% rally will basically put us above $2,000. That’s not my price estimation, but it’s not unreasonable either.
Inflation and the Omicron variant, the main risks that need close attention at the start of the new year. It is clear that the current inflationary impulse will be much stronger than the Fed anticipated just a few months ago. Jordan Eliseo explains it this way:
There is an enormous gap between current inflation levels right now and where the market thinks inflation will be five or ten years from now. So it will be really fascinating to watch how this develops in 2022. If the market even starts to smell that inflation will become more persistent, it will start to cause some difficulties for policymakers and investors alike.