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

Many gold investors will be happy to put 2021 in their rearview mirrors as the precious metal has lagged what has been a red hot commodity market for most of the year.

Despite a positive price environment of historically negative real interest rates, the gold market has suffered from lackluster demand as investors focused on the Federal Reserve tightening interest rates, which started with a reduction in its monthly bond purchases in November.

There are growing expectations that the Federal Reserve will speed up its tapering process and raise interest rates before the second half of next year. Currently, markets are pricing in a rate hike in June and see the potential for four rate hikes next year.

While this sentiment has weighed on gold through most of 2021, some analysts have said that the tide could start to turn in the new year as U.S. monetary policy is too aggressive.

Kristina Hooper, chief investment officer at Invesco, said that she expects that once the Federal Reserve starts to raise interest rates, the focus will turn to just how high those rates can go.

SocGen sees gold prices at $1,900 in Q2, no rate hikes until second half of 2022

"The 10-year yield will probably go up next year, but we don't see a dramatic rise," she said. "The Terminal rate is still going to be pretty low."

Hooper said that she expects the gold market to remain relatively flat next year, with prices continuing to hover around $1,800 an ounce.

She said gold remains an attractive inflation hedge and safe-haven asset in a world faced with growing geopolitical uncertainty. However, she added that U.S. economic growth supports risk assets even if momentum slows next year.

Ole Hansen, head of commodity strategy at Saxo Bank, said he is a little more optimistic on gold in 2022.

"There is enough uncertainty that gold should find a new top sometime in 2022," he said.

Although many investors have been disappointed in gold's performance this year, Hansen said that the market has held up relatively well. Gold prices are currently testing support just below $1,800 an ounce and the market is down 6% this year. However, Hansen added that the current price action appears to be some consolidation from the nearly 25% gains seen in 2020.

He added that the most significant factor driving gold is the growing inflation threat. He said that while Federal Reserve interest rate hikes will push bond yields higher, real interest rates will remain negative.

Most economists expect no matter how many times the Federal Reserve raises interest rates next year, they are not likely to get in front of the inflation curve.

"If the Fed tried to get in front of the curve, it would create a new recession," said Ole. "Next year, we could see a sharply inverted yield curve where short-term rates rise faster than the long tend and that means real rates will remain low and that is a good environment for gold."

It's not all about inflation

Interest rates and real bond yields will be critical factors driving precious metals prices next year; they are not the only thing market analysts are watching.

John LaForge, head of real asset strategy for Wells Fargo said that he sees the entire commodity sector in the middle of a long-term bull market. He added that most prices have rallied because of significant supply and demand imbalances.

LaForge explained that under-investment in the mining sector has created a dearth of supply, just as demand is increasing.

"The commodity rally comes down to the lack of supply growth and that is not easy to fix," he said during the bank's 2022 outlook presentation. "Regardless of where interest rates will be next year, growing supply deficits will drive commodity prices higher."

LaForge said that he is bullish on gold next year as the precious metal catches up to the rest of the commodity complex.

Currently, Wells Fargo sees gold prices pushing back to $2,000 an ounce in 2022.

LaForge did note that gold will be sensitive to U.S. monetary policy in 2022; however, he added that it is unlikely the Federal Reserve will adopt overly aggressive monetary policies.

The Wells Fargo bond market team noted that President Joe Biden will have three vacancies to fill on the Fed next year.

"It is unlikely that Biden will appoint hawkish central bankers to the board next year, so we think there will be a dovish tilt to monetary policy next year," said Darrell Cronk, chief investment officer of Wells Fargo in the bank's 2022 outlook webinar.

However, not all analysts are optimistic about gold for 2022. Commodity analysts at Capital Economics see gold prices falling to $1,600 by the end of next year.

"We think that short-term Treasury yields will rise a bit further over the next few years but that increases in long-term yields will be smaller. Given that the gold price is more responsive to changes in long-dated real yields, we are still confident that gradually rising long-term yields will pull the gold price down to $1,600 per ounce by end-2022," the analysts said.

By Neils Christensen

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold and silver setting up to go lower

Gold and silver can’t seem to gain any footing as they struggle in the current consolidation pattern. The battle between the bulls and the bears at the 1760-1800 level in Gold and 2180-2240 Silver has the appearance that the bears are going to take control once again.

The metals look ready for a meltdown. It would be no surprise to see gold trade at $1700, silver at $21 and platinum at $900. For now, the metals look bad, and the sellers are ready to take charge. Obviously, these patterns can change without notice, but the action is ugly.

You must remember, we are long-term bulls, but we are trading the price action today. If you can separate the two emotions, you can benefit from both sides. We remain short and willing to sell more paper gold at resistance levels.

In all markets, price action determines what will happen in the next day, week, or month. Keep the two strategies separate. The worst trade anyone can make is turning a trade into an investment hoping for a way out. Traders must learn to take their losses and move on to the next trade.

Patience, discipline, and money management always win the day. Let the map of the markets show you the way.

By Todd 'Bubba' Horwitz

Contributing to kitco.com

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold shines as inflation hits 39-year high

It is incredible how fast a year can fly by. Once again, the Kitco News team is getting ready to launch its annual Outlook Series to help gold investors navigate what are expected to be turbulent financial markets in 2022.

Kitco News’s Outlook feature will be launched on Monday. We are already compiling stories to give you the best information available.

Not to give you any spoiler alerts, but so far, the general sentiment among some of the biggest international banks is that gold is expecting to see renewed investor demand as inflation continues to heat up. This is good news for what has been a disappointing year for some.

Not surprisingly, inflation remains the most prominent story heading into 2022. Friday, the U.S. Labor Department said that its Consumer Price Index saw an annual rise of 6.8% last month. This is the highest inflation reading in 39 years, and according to some analysts and economists, there is room for inflation to go higher.

Looking to next year, many economists are expecting inflation pressures to peak in the first half of 2022 and then moderate in the second half of the year; however, consumers can expect to see inflation well above historical norms. Economic forecasts look for inflation to trend between 4% and 6% next year.

Gold is done falling and the Fed's announcement can't change that – Kitco's gold price survey

Economists and market analysts also see 2022 as an important transition year as the Federal Reserve looks to tighten its monetary policies. Because of the growing inflation threat, markets expect the U.S. central bank to raise interest rates as early as June. Surprisingly, markets are pricing in a total of four rate hikes next year.

So what does all of this mean for gold? Before gold bulls start to swoon over the idea of four rate hikes next year, it is important to look at the big picture. Most analysts see current market expectations as too aggressive. Pretty much every economist that we have talked to in recent weeks does not expect the Federal Reserve to get in front of the inflation curve.

There is still a lot of uncertainty in the global economy. The last thing any central bank wants to do is risk making a policy mistake.

According to many analysts, real interest rates are going to remain in low to negative territory next year because of inflation. The precious metal, which has had a lackluster 2021, is expected to see some renewed interest as investors try to protect their wealth and purchasing power.

By Neils Christensen

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold prices moving higher after U.S. CPI rises 6.8%, biggest jump since 1982

Gold prices are pushing higher, following a stronger-than-expected rise in U.S. consumer prices.

Friday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.8% in November, after a 0.9% rise in October. The data beat consensus forecasts as economists were forecasting a 0.7% rise.

For the year, the report said that headline inflation rose 6.8%. The report said this is the "largest 12-month increase since the period ending June 1982."

Annual inflation rose in line with expectations. Some economists were bracing for inflation to rise above 7%.

Meanwhile, core CPI, which strips out food and energy costs, increased 0.5% last month, up from a 0.6% increase in October. The data was in line with expectations. For the year, core CPI is up 4.9%.

The gold market moved into positive territory in an initial reaction to the firm headline number. February gold futures last traded at $1,779.50 an ounce, up 0.18% on the day.

SocGen sees gold prices at $1,900 in Q2, no rate hikes until second half of 2022

Looking at some of the components of the report, consumers continue to feel the pinch of rising energy prices. The report said that the gasoline index increased 6.1% last month, pushing the energy index up 3.5%. For the year, energy prices are up 33.3%.

Food prices also increased, rising 0.7%. For the year, the food index is up 6.1%.

The report said that the rise in food and energy prices is the most in 13 years.

Katherine Judge, senior economist at CIBC, said that with inflation hitting another multi-decade high, the Federal Reserve could be on track to raise interest rates by June 2022.

"While December will see some relief from lower energy prices on omicron, causing total inflation to decelerate, there is scope for supply chain issues to prop up core goods prices again as omicron spreads globally and disrupts production," she said. With inflation at a lofty pace, the Fed is set to accelerate its QE tapering timeline at the December meeting, to finish in the early spring, and to allow for a rate hike in Q2 2022, when the winter wave of Covid could be behind us."

By Neils Christensen

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Market participants await the November CPI inflation numbers

Tomorrow the U.S. Bureau of Labor Statistics will release the inflationary numbers vis-à-vis the CPI index. This report will be a critical component that the Federal Reserve will review before releasing its adjusted monetary policy. On Wednesday of next week, the Federal Reserve will release the statement including the revised dot plot and a press conference by Chairman Jerome Powell.

Bob Haberkorn, senior market strategist at RJO Futures said, “The stronger-than-expected jobless claims numbers along with a firmer dollar are pulling down on gold, but there are also traders waiting for the CPI data. If inflation numbers are going to be high, then gold will bounce right back up and make a move towards $1,800.”

Inflationary pressures have been spiraling out of control for months. Inflation rates edged higher beginning in June when the CPI came in at 5.4%. Inflation remained right around this level in July, August, and September. However, that all changed in October when the CPI projections indicated a major uptick to 5.8%. But the actual numbers came in well over the projections at 6.2%, the first occurrence of inflationary pressures at this level since November 1990.

Up until October the Federal Reserve maintained an adjusted mandate to let inflationary pressures run hot in place of maximum employment. They based their assumption on the belief that the current inflationary pressures will be transitory and will quickly move back down to acceptable levels.

Recently Chairman Powell acknowledged that that assumption was incorrect by removing the word transitory from the Fed’s vocabulary. However, his explanation was the whole truth, when he said we would remove the word transitory because “transitory means different things to different people.”

The report is expected to indicate a record level for inflation. Market participants, as well as Federal Reserve, will be intently focused upon tomorrow’s report. Currently, economists polled by various new sources are forecasting for yet a higher level of inflation predicting that inflation will increase by 0.7% taking the year-over-year number to 6.8%. If the economists are correct that would be a level not seen since the 80s.

Today’s decline in gold futures was not a reflection of the anticipated report tomorrow but rather based upon dollar strength and a report indicating strong jobs data in the United States. As of 5:35 PM EST gold futures basis, the most active February contract is fixed at $1775.90, a net decline of $9.60.

To get a better understanding of why gold could enter a major rally tomorrow if the inflationary numbers come in as forecasted or above, we need to look at what caused the record level of inflation in 1980 and what effect that had on the economy. In the early 1980s, countries worldwide including America, experienced one of the most severe economic recessions since World War II.

As Wikipedia puts it, “The early 1980s recession was a severe economic recession that affected much of the world between approximately the start of 1980 and early 1983. It is widely considered to have been the most severe recession since World War II. A key event leading to the recession was the 1979 energy crisis.”

In 1980 the inflationary pressures were between 12.52% to 14.76%. By January 1982, the CPI index fell to 8.39%. It took roughly three years from 1980 to 1983 before inflationary pressures normalized. This brings us to our current dilemma, for the Federal Reserve to effectively bring down inflationary pressures will not occur overnight and, in fact, could well be a long multiyear process. Historically, inflationary pressures at the current levels are the outcome of unique geopolitical or economic circumstances. Because there is an underlying force that drove inflation to these high levels, it is not possible to reverse that trend over a short period.

It is because of those factors that I believe if the CPI report tomorrow indicates higher inflationary pressures than the previous month, it will be clear that the Federal Reserve has a multiyear task to bring inflation back to normal levels. During that multiyear period, gold could experience one of the more dynamic rallies’s witnessed in our lifetime possibly even trading to a new record high based on the time necessary to normalize inflationary rates.

By Gary Wagner

Contributing to kitco.com

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold has been ‘shockingly stable’: It’s a long-term play as U.S. dollar rolls over, says Jeffrey Gundlach

Gold has been 'shockingly stable': It's a long-term play as U.S. dollar rolls over, says Jeffrey Gundlach

Billionaire "Bond King" Jeffrey Gundlach sees inflation not returning below the 4% handle next year, and bond markets are already "sniffing out a weaker economy" coming. For gold, this means a long-term hold after a "shockingly stable" and "boring" year.

There are "rough waters" ahead for the financial markets in 2022 as the Federal Reserve looks to accelerate its tapering schedule and raise rates next year, said DoubleLine CEO Jeffrey Gundlach.

"Powell is going to double that pace of taper, which would get us out in March. It's quite likely that since the stock market and risk assets have been clearly supported for over a decade by balance sheet expansion, it is turning into rough waters," Gundlach said during the DoubleLine Total Return Webcast.

A hawkish Fed will drag the economy down. And as the central bank proceeds to raise rates in 2022, economic problems will follow, Gundlach pointed out.

"It's likely that we will see economic problems with just a few rate hikes from the Fed — four rate hikes or so. It's 1% or 1.5% on the Fed funds rate that breaks the economy," he said.

The bond market is already signaling red flags. "Since March of this year, the bond market seems to be sniffing out a weaker economy coming … One should expect economic problems sooner rather than later. My base case is we'll start to see trouble by the second half of 2022," Gundlach noted.

Canadian gold price holding steady as BoC leaves interest rates unchanged

The trigger behind a more hawkish Fed is inflation, which is not going anyway next year. Gundlach warned that the U.S. inflation pace may not decelerate below 4% on an annual basis for the whole of 2022.

"Inflation on autos may go away, the inflation on lumber may dissipate, inflation on some of the supply-chain bottlenecks may dissipate, but wage growth and shelter may replace it and keep. Looking out to the end of 2022, it's very possible that we don't see a reading that has a handle below 4% at any time in 2022.

Gundlach also projected that inflation could rise to 7% on an annual basis in the next couple of months.

When asked about gold, Gundlach said it has been "boring" and "shockingly stable" in light of the commodity inflation and the wild ride going on in bitcoin this year. "Gold and silver are kind of the orphans in the commodity market. They have not gone up at all," he said.

For gold to rally, the U.S. dollar needs to roll over. "The dollar has been a cap on gold. I do think that when the dollar heads down, gold will go up."

Gundlach continues to hold gold as a long-term play, adding that the last time he bought the precious metal was in September 2018 at around $1,180 an ounce level.

"But it certainly has not been rewarding at all this year compared to the other things from commodities," Gundlach commented.

Gundlach's long-term dollar view is "strongly bearish," with expectations of a weaker USD in the second half of 2022 or 2023 due to twin deficits in the U.S.

"When the dollar starts to slip, I think it's going to slip pretty mightily and take out that low of 2009. That'd be quite a drop from here. When the dollar starts to go down, you're going to see tremendous outperformance by non-U.S. stocks. Emerging markets will be a very strong performer," the billionaire money manager said.

DoubleLine CEO also projected that the Fed would step in to defend risk assets through money printing.

"The Fed will step in if the equity market declines by say 20% or more. Money printing and money giveaways are with us to stay. And, I predicted this years ago that we would send money to people and do it more broadly and at greater amounts," Gundlach stated.

By Anna Golubova

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold price near steady as risk appetite growing

Gold prices are trading not far from unchanged in early U.S. dealings Wednesday. Buying interest is being limited in safe-haven gold and silver as trader and investor risk appetite seems to be growing keener by the day. However, selling interest in the metals is being squelched by the big rebound in crude oil prices recently, which suggests "black gold" and the leader of the raw commodity sector has put in at least a near-term bottom. February gold was last up $0.50 at $1,785.50 and March Comex silver was last down $0.093 at $22.425 an ounce.

Global stock markets were mostly up in overnight trading. U.S. stock indexes are pointed toward firmer openings when the New York day session begins. The Omicron fears seen over the past nearly two weeks have quickly faded as trader and investor risk appetite is robust at mid-week. Pfizer has just reported three vaccine doses neutralize the Omicron variant, while two doses likely still prevent serious effects from the variant.

As Omicron moves off the front burner of the marketplace, focus is on other matters such as new ideas the Federal Reserve will move even more quickly to end its bond-buying program, so it can start raising U.S. interest rates. The Fed's FOMC meets next week. The marketplace now expects the Fed to hike rates in May of next year. The Fed recently abandoned its notion that inflation is just "transitory."

In other news, China's stock markets have been pressured this week as property giant Evergrande missed a bond payment deadline Monday.

Traders are also monitoring the Russia-Ukraine border situation, where Russia has amassed troops. U.S. President Biden and Russian President Putin discussed the matter on the telephone Tuesday, but no progress was made on a de-escalation of the apparent Russian intentions of invading Ukraine and even annexing it. It appears this situation will get more tense before it gets better, and that means safe-haven assets are likely to come more into favor in the near term, including gold, silver, the U.S. dollar and U.S. Treasuries.

The key "outside markets" today see Nymex crude oil prices lower and trading around $71.00 a barrel. This week's strong gains in crude oil suggest the market last week put in a near-term bottom. The U.S. dollar index is slightly lower. Meantime, the yield on the U.S. Treasury 10-year note is presently fetching 1.461%.

U.S. economic data due for release Wednesday is light and includes the weekly MBA mortgage applications survey and the weekly DOE liquid energy stocks report.

Technically, February gold futures bulls have the slight overall near-term technical advantage. Bulls' next upside price objective is to produce a close above solid resistance at $1,840.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the November low of $1,761.00. First resistance is seen at the overnight high of $1,794.30 and then at $1,800.00. First support is seen at this week's low of $1,772.40 and then at last week's low of $1,762.20. Wyckoff's Market Rating: 5.5

The March silver bears have the firm overall near-term technical advantage. Prices have been trending down for nearly three weeks. Silver bulls' next upside price objective is closing December futures prices above solid technical resistance at $24.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the September low of $21.46. First resistance is seen at this week's high of $22.635 and then at $23.00. Next support is seen at last week's low of $22.035 and then at $22.00. Wyckoff's Market Rating: 2.5.

By Jim Wyckoff

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold slightly up as crude oil rallies

Gold prices are up just a bit in midday U.S. trading Monday. Solid gains in crude oil prices to start the trading week (bullish) are slightly trumping better trader/investor risk attitudes (bearish). February gold was last up $1.50 at $1,785.40 and March Comex silver was last down $0.136 at $22.34 an ounce.

It was a quieter trading day Monday. Global stock markets were mixed to firmer. U.S. stock indexes are higher at midday. There is less risk aversion in the global marketplace to start the trading week. Early reports say the Omicron strain of the coronavirus appears to be a milder strain than Delta, but may be more contagious.

In other weekend news, Bitcoin and other crypto currencies saw their prices plunge, with Bitcoin losing over 10% in value at one point. Ideas of a tighter U.S. monetary policy sooner apparently helped to sink the cryptos.

Asian shares were pressured by a big drop of 20% in property giant Evergrande, as that firm warned it could default on some debt payments.

Gold is stuck between these two forces, prices to climb towards $1,900 in Q1 2022 – Standard Chartered

China's central bank has eased its monetary policy slightly by reducing the reserve requirement ratio for its banks.

The key "outside markets" today see Nymex crude oil prices solidly higher and trading around $68.25 a barrel. The U.S. dollar index is higher. Meantime, the yield on the U.S. Treasury 10-year note is presently fetching 1.388%.

Technically, February gold futures bulls have the slight overall near-term technical advantage but need to show fresh power soon to keep it. Bulls' next upside price objective is to produce a close above solid resistance at $1,840.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the November low of $1,761.00. First resistance is seen at today's high of $1,789.00 and then at $1,800.00. First support is seen at $1,775.00 and then at last week's low of $1,762.20. Wyckoff's Market Rating: 5.5

March silver futures bears have the firm overall near-term technical advantage. Prices are in a three-week-old downtrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $24.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the September low of $21.46. First resistance is seen at today's high of $22.635 and then at $23.00. Next support is seen at last week's low of $22.035 and then at $22.00. Wyckoff's Market Rating: 2.5.

March N.Y. copper closed up 460 points at 4310.25 cents today. Prices closed near the session high today. The copper bears have the slight overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the November high of 451.15 cents. The next downside price objective for the bears is closing prices below solid technical support at the November low of 420.00 cents. First resistance is seen at 435.15 cents and then at last week's high of 438.15 cents. First support is seen at today's low of 425.35 cents and then at the November low of 420.00 cents. Wyckoff's Market Rating: 4.5.

By Jim Wyckoff

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold starts the session flat heading into the European open

Gold is trading 0.08% higher leading into the European open at $1784/oz. On the contrary, silver has fallen 0.44% and starts the session at $22.44/oz. In the rest of the commodities complex, copper is trading just under flat, while spot WTI is up around 2%.

On the risk side, the Nikkei 225 (-0.36%) and Shanghai Composite (-0.50%) fell overnight, while the ASX (0.05%) managed to keep its head above water. Futures in Europe are initiating a positive cash open is on the cards.

In FX markets, the dollar index is up 0.19% and AUD is the only major currency to gain against the greenback. In the crypto space, BTC/USD had a dismal weekend falling through $50K to trade at $48,117.

Major headlines:

Talk of an RRR cut from China. China Securities Daily says cut could come as soon as this month.

U.K. ministers announce new COVID-19 restrictions for travellers entering the U.K..

Biden and Putin are to have a phone call this Tuesday (one for the diary).

Japan PM Kishida says to shorten waiting period between vaccine and booster shot.

Swiss National Bank (SNB) vice chairman Zurbrügg to step down at the end of July 2022.

US to fast-track revamped vaccine in battle against omicron.

Germany October factory orders -6.9% vs -0.5% m/m expected.

Looking ahead to the rest of the session highlights include EZ sentix data, Riksbanks minutes, comments from BoE's Broadbent, Riksbank's Skinglsey and the Eurogroup meeting.

By Rajan Dhall

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold at $10k, silver at $500 due to ‘a decade of shortage’, inflationary black swan event

Gold at $10k, silver at $500 due to 'a decade of shortage', inflationary black swan event

Gold's safe-haven appeal is yet to kick in. The precious metal once again failed to hold the $1,800 an ounce level. And that's despite high volatility in the U.S. equity space triggered by omicron fears. Here's a look at Kitco's top three stories of the week:

3. Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testify

2. Singapore piles into gold for the first since 2000 + Ireland buys gold for the first time in 12 years

1. Gold price at $10k, silver at $500 due to 'a decade of shortage', says Goehring & Rozencwajg

By Anna Golubova

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David