Fitch Solutions said Friday it expects gold prices to trade sideways in the coming months along with bouts of volatility as conflicting factors continue to affect assets.
On the one hand, gold is supported by still high inflation, falling US Treasury yields, rising geopolitical tensions and the rapid rise in Covid-19 cases due to the Delta variant.
On the other hand, Fitch said, the US Federal Reserve’s monetary policy normalization with winding down may begin before the end of 2021, as well as continued easing of restrictions as vaccination rates continue to rise.
But a strong global economic growth outlook and a temporary strengthening of the US dollar will put pressure on gold prices, it added.
“For now, we maintain our gold price forecast for 2022 of USD 1,700/oz and expect the gold price to remain high compared to pre-Covid levels for years to come.”
Fitch said the gold price forecast for 2022 of USD 1,700/oz is supported by the belief that the gold price will begin to weaken from 2022 onwards. While inflationary pressures remain high, Fitch believes they are largely transient, with global inflation data indicating that it is on the cusp of peaking.
Global inflation is most likely to decline towards the end of Q321 and into Q421, despite remaining high compared to pre-pandemic levels that will put pressure on gold prices.
In addition, the Fed will most likely begin to normalize monetary policy (start tapering before the end of 2021), which will keep the gold price on a downward trend.
Fitch predicts that the Fed will begin to hike in 2023, leading to a diminished attractiveness to gold as bond yields rise amid the ongoing economic recovery from Covid-19.
However, a number of factors will still provide some support for gold, which will keep a bottom below prices for years to come so that it will not return to pre-Covid levels anytime soon.
One of the driving forces is the expectation that the US dollar will maintain a weakening bias over the longer term. At the same time, geopolitical uncertainty, which has recently flared up with the withdrawal of US military forces from Afghanistan, will continue to give a tailwind to gold as a number of global elections take place in the coming quarters.