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Gold price is heading back to $2,000 after playing 'second fiddle' to other assets – DailyFX

Kitco News

(Kitco News) After playing "second fiddle" to other assets for most of the year, gold is on its way back towards the 2020 record highs of above $2,000 an ounce, said DailyFX analyst Warren Venketas.

There is a good upside to the price of gold as markets gear up for the Federal Reserve December monetary meeting, with the U.S. inflation and employment data at the forefront of everyone's minds.

"Inflation is a big one for me. If we see inflation expectations outperforming the move in yields. That's what I'm looking for at that year-end rally. And it is in the cards. I am very bullish at this point," Venketas told Kitco News.

Technically, gold is set up perfectly for a bullish rally, he noted. And a hotter-than-expected and more persistent inflation will help drive prices higher.

"There is a very strong case for the year-end gold rally," Venketas said. "That second-round impact of the price increases will last into the second half of 2022. Inflation is here to stay for the next six months or so. It is transient but it will be more prolonged than initially forecasted."

Reaching those 2020 record highs above $2,000 an ounce is possible for gold next year as the precious metal catches up to other alternative assets.

"It is a possibility because we haven't seen that typical gold behavior on the back of inflation. Gold has been playing second fiddle to a lot of the other commodities. It can catch up. There are a lot of fundamental factors that we've gone through that are favoring further upside," Venketas explained.

One major competitor to gold's price performance has been bitcoin. "People have been flocking to crypto as a potential inflation hedge, taking away from gold's attractiveness. Plus, gold's safe-haven appeal has been dissipating as COVID cases decreased globally."

By the end of this year, the DailyFX analyst is looking for gold to climb to $1,916 an ounce.

So far, Federal Reserve Chair Jerome Powell managed to convince the markets that the central bank will remain patient when it comes to raising interest rates — prioritizing reaching full employment over fighting high inflation. But markets do often tend to overreact to data, which is why those rate hike expectations could spike again.

"Everything is data-dependent," Venketas said. "Leading up to the December meeting, inflation and employment figures are going to be key."

The Fed's December meeting will also reveal the dot-plot and the latest economic projections, which will clarify the macroeconomic situation.

The more persistent inflation turns out to be, the more gold will rally, the analyst added. "That is bullish for gold because historically we see gold tick higher when inflation is more persistent as opposed to short term."

Venketas does not see the Fed raising rates until September or even December of next year.

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