Gold price still has a path to $2,000, silver to $31 - CIBC
(Kitco News) - There is still a path for higher gold prices even as the precious metal struggles to recover from last week ’s massive selloff, according to one Canadian Bank.
In a report Wednesday, commodity analysts at CIBC adjusted their price forecasts for gold and silver. While the bank has downgraded its price forecast for this year, the analysts remain optimistic that prices will peak above $2,000 an ounce by 2022.
For this year, the Canadian bank sees an average gold price of $1,925 per ounce and an average price of $2,100/oz in 2022. The analysts noted that their revision is less than 10% from their previous forecast.
Looking at silver, CIBC said that they see the precious metal averaging the year around $28 an ounce, down from their previous estimate of $29. The analysts are maintaining their 2022 average price forecast of $31 an ounce.
“We expect demand for physical gold and silver will remain elevated, not only from traditional investors but also from a wider array of investors seeking a safe-haven option to hedge against market volatility,” the analysts said.
Although rising inflation pressures are forcing the Federal Reserve to take a more hawkish stance on monetary policy, the analysts said that investors need to pay attention to real interest rates. The comments come a week after the U.S. central bank caught markets off guard, suggesting that it could start raising interest rates in 2023.
“While inflation will undoubtedly provide a boost to gold, in our view, real rates will continue to be the bigger driver for outperformance over the coming year. History shows that gold doesn ’t seem to care and, in fact, can keep outperforming until real rates post a significant recovery. That recovery still seems very far off at this stage,” the analysts said. “Given our expectations for inflation to increase over the coming months and for pressure on the Fed to walk a fine line between hiking rates to manage inflation vs. supporting economic growth, we continue to believe that gold and silver prices will continue to climb over the coming quarters.”
The analysts added that even if the Federal Reserve starts to tighten monetary policy, they will be limited in what they can do as the U.S. government continues to pump liquidity. They added that even in a rising inflationary environment, they expect the central bank to take a cautious approach to tightening monetary policy.
“While the monetary printing presses have slowed in the last few quarters, fiscal stimulus spending has continued to expand and shows little signs of slowing. Overall, macro liquidity remains high and that trend isn ’t expected to change anytime soon. Further, U.S. President Joe Biden has proposed a $6 trillion spending plan, resulting in annual deficits of more than $1.3 trillion over the next decade,” the analysts said. “It is clear that fiscal stimulus is here to stay, leaving the Federal Reserve in a tough spot.”
Looking at silver, not only will the precious metal continue to benefit in a low interest rate environment, but CIBC said that growing industrial demand will also provide important support through the next two years.
CIBC said growing demand from the solar sector, and the evolving green energy transition will increase silver ’s industrial demand.“Incorporating these demand fundamentals, we are forecasting a physical demand/supply deficit for each of 2022 and 2023, which could be further tipped off balance by increases to investment demand beyond our fairly modest estimates,” the analysts said.