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Gold price to drop 16% to $1,500 in 2022, 2023 doesn't look any better - ABN AMRO

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) - Gold's price action through 2021 has been a disappointment as the precious metal has seen lackluster investor demand; however, according to AMB AMRO, 2022 could be a disaster as they see gold prices falling 16%.

In her 2022 gold price forecast, Georgette Boele, senior FX & precious metals strategist for the Dutch bank, said that she sees gold prices falling to $1,500 an ounce by the end of next year and dropping to $1,300 an ounce by the end of 2023.

The bearish outlook comes as the gold price has been unable to hold gains above $1,800 an ounce. February gold futures last traded at $1,795.10 an ounce, down nearly 6% on the year.

Boele said that global monetary policies will be a major factor behind gold ’s drop next year. While the Federal Reserve has garnered most of the attention, Boele noted that several central banks are also on the cusp of tightening their monetary policies in 2022.

The bank of England is leading the pack as it raised interest rates last week. The Federal Reserve last week signaled that it could raise interest rate three times next year.

Boele noted that even dovish central banks like the European Central Bank are moving towards tightening their monetary policies.

"The ECB, the Bank of Japan, the Reserve Bank of Australia, the Riksbank and the Swiss National Bank will likely hike later compared to the other central banks, but the direction is towards tightening and not easing," she said. "Tighter monetary policy is in general negative for gold prices, also because yields on government bonds have a tendency to rise."

Tide will turn for gold price in 2022 as real yields remain low despite Fed rate hikes

Turning to U.S. monetary policy, Boele said that raising interest rates are expected to push bond yields higher, particularly in the front end of the curve.

"Moreover, we think that inflationary pressures will ease. This results in higher [2-year] U.S. real yields and that will weigh on gold prices going forward," she said.

Boele also noted that tighter U.S. monetary policy will also boost the U.S. dollar, creating another headwind for the precious metal.

Boele also noted that elevated holdings in gold-backed exchange traded products also represent significant risks, as weaker gold prices could prompt investors to liquidate their holdings.

"Currently, total known ETF positions are still around 19% higher than at the start of 2020, despite the decrease in ETF positions from 110 million troy ounces to 98 million troy ounces," she said.

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.