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Post-Fed is the time for gold price to take the reigns, says Standard Chartered

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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) After the uncertainty around the Federal Reserve's tightening plan has been cleared up, it is gold's time to shine, according to Standard Chartered.

Gold managed to quickly recover its losses post-Fed announcement and make its way towards that elusive $1,800 an ounce level. This came in response to the central bank stating that it was doubling its asset tapering pace to $30 billion a month and was pricing in three rate hikes for 2022

"Gold positioning was relatively cautious ahead of the meeting and price action suggested that a number of headwinds were already priced in," said Standard Chartered precious metals analyst Suki Cooper. "Gold had likely priced in the likelihood of accelerated tapering given its sensitivity to high inflation prints."

The fact that a more aggressive Federal Reserve was already priced is what makes Thursday's rally make sense. "Gold prices tend to start firming after the first rate hike in a hiking cycle or tapering announcements as, historically, the market prices in such a move early," Cooper said.

On Wednesday, the markets got both — a new tapering schedule and an updated rate hike outlook.

"The Fed accelerated tapering to USD 30bn per month starting in mid-January and raised inflation forecasts; the FOMC's dot plot now shows three hikes in each of 2022 and 2023 and two more in 2024," Cooper noted.

What gold does once it reaches $1,800 an ounce will be critical since that is a very strong resistance level.

"Gold has shifted lately to tracking real yields more closely than the USD. While this should provide greater upside risk to gold over the medium term, conviction is low in the near term. Prices are likely to attempt another breach of USD 1,800/oz next year as the USD is likely to weaken and real yields remain negative. We expect prices to average USD 1,774/oz in 2022," she said.

At the time of writing, February Comex gold futures were trading at $1,797.90, up 1.89% on the day.

Standard Chartered does see gold rising to $1,875 an ounce in the first quarter of next year.

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"Inflation and rate hike expectations will be key drivers in 2022 with the floor set by demand from China and India," Cooper pointed out. "The physical market tends to set the floor … China's festival-related buying broadly gathers momentum six weeks ahead of the Lunar New Year."

Gold is looking to end the year with losses, down about 8.5%, but the precious metal has been resilient.

"Gold prices set their intra-year highs at the start of the year, but asset rotation on high vaccine efficacy supporting the economic recovery – and in turn, a recovery in risk appetite supporting the reflation trade – weighed on gold," explained Cooper.

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