Outlook 2022
Credit Suisse sees gold price around $1,850 in 2022, but long term around $1,400
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 gold market is starting the last trading week of 2021 above $1,800 an ounce, and according to an analyst from Credit Suisse, the precious metal could see further bullish momentum in the new year.
In a recent report, Fahad Tariq, precious metals analyst at the Swiss bank, said that he remains optimistic on gold prices even as the Federal Reserve prepares to raise interest rates in 2022.
However, the bank does not expect gold prices to hold above pre-pandemic levels in the long term.
According To Tariq, Credit Suisse looks for gold prices to average around $1,850 an ounce. Looking to 2023, the bank expects gold prices to fall to $1,600 an ounce and it sees long-term prices hovering around $1,400 an ounce.
Tariq said the most significant impact for gold remains rising inflation pressures and Federal Reserve interest rates hikes.
"On interest rates, the consensus view appears to be potentially multiple rate hikes by the Fed in 2022 (following the completion of its bond tapering program), but there is uncertainty in terms of how high rates could actually go given record levels of national debt," he said.
Although the Federal Reserve has said it expects to raise interest rates at least three times next year, Tariq said that rising inflation pressures will keep real rates in negative territory through 2022. He added that real negative interest rates would remain supportive for gold prices.
"Risks to our view include a more hawkish Fed, return to normalized inflation, substitution effect with cryptocurrencies, and lingering weakness in retail demand for gold," said Tariq.
Tariq said that mining equities remain an attractive investment even if the gold price remains steady around $1,850 an ounce.
"Despite a decline in the gold price from a record ~$2,000/oz in Aug. 2020 to ~$1,770/oz spot (-11.5%), the gold sector remains fundamentally sound with strong balance sheets (most producers in our coverage area in a net cash position)," he said in the report.
However, Tariq said that the gold equity sector could also face some challenges in 2022, as input prices rise because of inflation.
"Since mid-2021, investors have been more closely watching cost inflation for gold miners and heading into 2022, there is concern that as a result of 5-10% operating cost inflation, coupled with potentially flat-to-declining gold prices, margins and free cash flow could be meaningfully lower YoY," he said. "Barring a new Covid-19 variant that results in widespread cases and a return to mine lockdowns, we do not expect Covid-19 to be a major operational concern in 2022."
Credit Suisse said its top pick in the mining sector is Agnico Eagle. It became the world's third-largest gold producer after merging with Kirkland Lake.
"We view the post-deal Agnico Eagle as the highest quality, lowest cost senior gold producer, with room for a meaningfully higher dividend," he said.
The bank's other top mining plays for next year include Barrick (NYSE: GOLD), Endeavour Mining (TSX: EDV), Kinross (NYSE: KGC, TSX: K), Newmont (NYSE: NEM), Triple Flag Precious Metals (TSX: TFPM), and Yamana (NYSE: AUY).
