The gold market should get ready for another earthquake after yesterday’s strong NFP reading, which leaves no illusions about any shifts in the FED’s monetary policy in the near term. Currently, the bullion has dropped below the $ 1,700 barrier, and analysts say central banks will continue to increase interest rates until at least the first quarter of 2023 to curb inflation. So what are the long-term prospects for gold and when is it expected to return to the bull market?
Gold has had a difficult year
After reaching a record high of over $ 2,000 an ounce in March 2022, gold prices continued to decline. For much of 2022, gold prices were under pressure due to interest rate hikes and monetary tightening by central banks around the world, causing the XAU / USD exchange rate to decline by 7% since January alone. Analysts say the central banks of major economies, including the US Federal Reserve and the European Central Bank (ECB), will continue to raise interest rates until at least the first quarter of 2023 to curb inflation, so what are the metal’s future prospects?
Gold quoted against the US Dollar as of 10/8/2022 Source: TradingView Data from the World Gold Council showed that the price of gold started in 2022, trading at $ 1,811.40 an ounce on January 4. The precious metal continued its climb until it reached the $ 1,936.30 level on February 24, 2022, when Russia invaded Ukraine. It briefly plunged to $ 1,884.80 on February 25, but the price rebounded quickly and resumed its rise. In the first week of March, due to the panic, gold was trading above $ 2,050 an ounce, close to its ATH $ 2,075 an ounce as of August 2020. However, the yellow metal lost its gains in mid-March, falling below $ 2,000 as the Fed began tightening monetary policy to fight rising inflation. On March 16, the Fed raised its benchmark interest rate by 25 basis points, bringing the federal funds rate to the new target range of 0.25% – 0.50%. This was the first interest rate hike by the Fed since 2018. Gold was thus caught in the grip of the war between fleeing inflation and monetary policy in the second quarter, pushing the gold to around $ 1,817 by the end of June.
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START INVESTING – In the following quarter, the yellow metal continued to decline as it became clear that central banks were implementing aggressive rate hikes to tame stubbornly high inflation, she wrote on August 2. Sucden Financial’s head of research Geordie Wilkes and Daria Efanova in the quarterly report on metals. At its meeting on September 20-21, the Fed raised its interest rate by another 75 basis points, bringing the federal funds rate down to a range of 3% -3.25%. It was the fifth rate hike by the Fed since March 2022, and the next one will probably be in November (no meeting is scheduled for October). Yesterday’s NFP data showed 263,000. new jobs in September with the forecast of 250 thousand. and an unemployment rate of 3.5 percent. against the estimated 3.7 percent. The likelihood of an interest rate hike by another 75 basis points (for the fourth time in a row) jumped to nearly 80 percent. (CME FED Watch Tool model), and taking into account the recent hawkish comments from the Federal Reserve representatives, the market will reduce the chances of a possible interest rate cut at the end of next year. These shifted to December 2023 and fell to slightly above 30 percent.
Gold is holding up quite well
Despite a sharp decline during the quarter, the metal has held better than other assets so far in 2022, including base metals, stocks and bonds as the yellow metal helped to mitigate losses during this volatile period, wrote Wilkes and Efanova of Sucden, quoted earlier Financial – In the second half of 2022, gold will face a tough environment: persistently high inflation and recession, or at least stagflation, wrote Wilkes and Efanova, without providing a price forecast. In its September 23 forecast, ANZ Research suggested a fall in gold averaged quotation to $ 1,756 in 2023 and $ 1,555 in 2024. – The precious metal is susceptible to declines only due to the current macroeconomic environment. The expectations for another aggressive rate hike will probably lead to a further sell-off. Technically, the bearish trend should continue, ANZ Research senior commodity strategist David Hynes and Soni Kumari wrote in the note. On September 1, Fitch Solutions revised its gold price estimate to a median of $ 1,800 an ounce in 2022, but continues to expect gold prices to stabilize at $ 1,800 in 2023.
Long-term forecast for gold
Fitch Solutions expects that in the longer term after 2023, the value of gold will still decline with the end of the Russian-induced war. Fitch predicts gold prices will fall from $ 1,800 in 2023 to $ 1,700 in 2024. In its 2025 gold price forecast, the company predicts gold will fall below $ 1,610, further dropping to $ 1,600 in 2026. “ As Covid-19 is no longer a problem after 2022 or 2023, a returning risk-on should make gold less attractive, ” said Fitch Solutions. “The strength of the US dollar and the recovery of global bond yields should stabilize at relatively high levels, but despite our forecast of a weakening in gold prices, we do not see a return to pre-Covid-19 levels,” they added. The World Bank in April in its Commodity Markets Outlook 2022 predicted that gold prices would fall to an average of $ 1,650 an ounce by 2024. – In the longer term, gold prices may be affected by the policy of the Bank of Russia, and if it engages in large gold sales, prices may drop significantly – World Bank analysts wrote.
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START INVESTING Alternatively, BofA expects the uptrend in its gold futures forecast to return, expecting the metal to rise to $ 2,100 / oz from $ 1,938 in 2023. The gold was predicted to drop to $ 1,945 in 2024, then rebound to $ 1,958 in 2025 and remain at $ 1,969 in 2026.
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