Gold bulls aren't afraid of Fed rate hikes in 2022
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) - There is a new rush of bullish sentiment in the gold market as prices push back above $1,800 even after the Federal Reserve signaled that it could raise interest rates three times in 2022.
However, while some analysts see the potential for higher prices in the near term, they also see this as another opportunity to sell rallies as the precious metal ultimately faces headwinds of rising real interest rates next year.
Chris Vecchio, senior market strategist at DailyFX.com, said a weaker U.S. dollar and slightly lower real bond yields are helping to push gold prices higher. Still, he added that unless gold can break above $1,835, he sees the rally as a selling opportunity.
"At present, because the fed is acting to clamp down on inflation pressures, at least talking like they're going to, then break, even rates should continue to fall. And that means real yields probably have hit a floor in the very near term, and that is a headwind for gold," he said.
However, other analysts see the potential of a more sustainable shift in the precious metal. Darin Newsom, president of Darin Newsom Analysis, said that despite a more hawkish Federal Reserve, the U.S. dollar could not break above its November highs.
"Rates maybe be going up, but they are going up incrementally. Looking at the charts, the view is that the U.S. dollar has topped for now and will give gold some breathing space to move higher," Newsom said.
Newsom added that rising geopolitical tensions between Russia and Ukraine could keep a safe-haven bid in gold in the near term.
"In times of uncertainty, investors like to hold gold," he said.
This week 16 Wall Street analysts participated in Kitco News' gold survey. Among the participants, 11 analysts, or 69%, called for gold prices to rise next week. At the same time, two analysts, or 13%, were bearish on gold in the near term, and three analysts or 19% were neutral on prices.
Meanwhile, a total of 1,027 votes were cast in online Main Street polls. Of these, 593 respondents, or 58%, looked for gold to rise next week. Another 263, or 26%, said lower, while 171 voters, or 17%, were neutral.
The strong bullish sentiment in the gold market comes as prices look to end the week, up more than 1% from last Friday. For some analysts, the market is showing some resilient strength as prices were able to hold support above $1,750 an ounce ahead of the Federal Reserve's monetary policy decision.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that gold is benefiting from rising risk aversion sentiment in financial markets and the growing inflation threat.
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"Inflation remains top of mind for investors, especially now that it is high enough that it put pressure on three central banks to make hawkish moves this week," said Cieszynski.
Ole Hansen, head of commodity strategist at Saxo Bank, said that he is bullish on gold as a new worldwide wave of the COVID-19 pandemic could limit growth expectations, boost gold as a safe-haven asset.
However, not all analysts at bullish on gold in the near term. David Madden, market analyst at Equiti Capital, said that he continues to see the potential for a stronger U.S. dollar in the near term.
"It has been a very volatile 48 hours for gold prices and it is because of a softer U.S. dollar," he said. "I just see this as short-term profit-taking in the U.S. dollar as it looks a little over-stretched."