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The first half of 2022 will be the best time for gold price next year, says TD Securities

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(Kitco News) The 2022 gold outlook looks promising, with the first half of next year offering the best environment for the gold bulls, according to TD Securities' commodities outlook.

"Positive gold story in play for [the] first half of next year," wrote TD Securities commodity strategists.

The precious metal could be looking at a rally towards $1,900 an ounce during the first six months of the year as markets focus on economic growth, inflation and political risks.

"Political risks associated with the pending U.S. mid-term elections, U.S. fiscal drag, fairly steadfast central banks gold purchases, and a significantly slower pace of U.S. and global recovery are additional factors which may see investor rekindle their interest in gold," said TD Securities global head of commodity markets strategy Bart Melek. "These factors should help lift gold into $1,900/oz territory in the first half of 2022, as per our projections."

Gold has been in a consolidation mode throughout 2021, kicking off the year at around $1,960 and last trading just above $1,750 an ounce.

"Real interest rate trends which were driven by inflation developments, Fed policy signals, and nominal rates, led to these gold price fluctuations. For most of 2021, investor ETF, CTA, and derivatives positioning were very much skewed toward the shortening of exposure," Melek wrote.

One positive gold driver that the markets are currently underestimating is a Federal Reserve that is unwilling to raise rates in the middle of next year. The CME FedWatch Tool is already pricing in a 44% chance of the first rate hike as soon as June.

"Considering this framework and the fact that the market is pricing a Fed funds hike as early as next summer, the current investor bias toward the short end of exposure has driven prices down to $1,755 recently. But summer of 2022 may be much too early for the Fed to pull the trigger on Fed Funds hikes, given the fact that nonfarm payrolls remain some 4-5 million below pre-Covid levels in the U.S.," Melek pointed out.

Next year's focus will be on the economic data, determining just how aggressive the Fed can afford to be next year.

"Weakish economic data over the next several months and an FOMC which is laser focused on full employment, with a somewhat relaxed attitude toward strict inflation targeting (one which perceives inflation as transitory), are all factors likely to keep the U.S. central bank from pulling the trigger on a hike as early as the market is projecting," Melek noted.

This scenario would see real rates remain low and encourage gold buying next year, the outlook added.

"The hope for the resulting higher potential growth, non-accelerating inflation rate of unemployment, may all leave the U.S. central bank comfortable keeping the economy running hot for longer. This would be a very gold-accretive real interest rate environment. The best case for gold is high but decelerating inflation," Melek said.

TD Securities outlook estimates for gold to average $1,875 in the first quarter of next year, $1,824 in the second, $1,800 in the third and $1,750 in the fourth.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.