Make Kitco Your Homepage

"Inflation beast is out" and gold price looks to $3K in response to Fed's policy, says mining strategist

Kitco News

Welcome to Kitco News' 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.

(Kitco News) - The inflation beast is 'out of its cage,' and the Federal Reserve is now forced to respond. But a tighter monetary policy does not mean lower gold prices, says Christopher Ecclestone, Principal and Mining Strategist at Hallgarten & Co. And here's why.

"There's only one reason why the price of gold will go down, and that is if central banks soft-pedal on inflation, and that's what they have done so far," Ecclestone explained. "But as we see inflation continue to rise, particularly in the U.S. and the U.K., it has gotten out of control. Only higher interest rates will keep inflation down."

Ecclestone spoke to Michelle Makori, Lead Anchor and Editor-in-Chief of Kitco News, on the sidelines of the Mines and Money London conference. Hallgarten produces research on the natural resources sector.

In terms of inflation and its economic impact, Ecclestone stated that investors who have confidence that the Fed will be able to control inflation are mistaken.

"The inflation beast has gotten out, and it's going to take a lot of effort to get it back into its cage," Ecclestone emphasized. "This will ultimately impact property markets. It's going to impact companies that are highly leveraged. We are already seeing big property crashes in China that are linked to overextended property developers."

Uranium will rally in the next 5 years as a shift to nuclear energy is inevitable

Ecclestone pointed out that investors will look toward gold if property prices start to drop. "If inflation keeps rising, people are going to be trying to figure out where they should invest their money, particularly if property prices stop going up or start to go down," he added. "Property has been a big haven for investors for the last 30 years in most western economies. They will be looking for the next sure bet."

Ecclestone noted that most investors use gold as a savings method. "Traditionally, gold has been a hedge against inflation. There is a mistaken view that higher interest rates would impact the price of gold because supposedly people are borrowing money to buy gold which is totally a bogus construct," he said. "Most people are using gold as a savings method."

Over the next year, Ecclestone expects gold to reach $2,000 an ounce and then climb towards the $3,000 level in the next four years after that.

"Gold ultimately needs to rise because people do not have faith in keeping their money in fiat as a means of protecting their currency," he stressed. "I would not be surprised if we see gold above the $2,000 level over the next 12 months. My five-year outlook for gold is $3,000 per ounce."

Ecclestone sees silver rising back towards $30 next year and then advancing to $40 by 2026.

Watch the full video above to learn about other exciting commodity plays and why uranium has the potential for the most upside. Follow Michelle Makori on Twitter: @MichelleMakori

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.