As gold plunged back into the $1,770s/oz range in the days immediately after the June FOMC economic projections were released, the market delivered a sobering reminder to investors and analysts that the path to new highs is almost never a smooth one. Despite the recent selloff, economists at TD Securities judge that the Fed’s continued emphasis on its full employment mandate should see the yellow metal recover most of its recent losses.
See – Gold Price Forecast: Hidden inflation genie to prevent XAU/USD rises – Deutsche Bank
Gold can shine when nominal rates do not outpace inflation expectations
“Despite the fact that the FOMC dot plot shifted hike expectations forward to late-2023 (median showing a 50bp of tightening), with many traders expecting a much earlier tightening, and that Chair Powell has started the process of preparing markets for QE tapering, we believe that the yellow metal is still in a position which makes a return to a $1,900/oz range possible into 2022.”
“So far treasury markets don’t seem to be worried about out of control price increases. Even if there is a period of above expectation prices, we suspect that Mr. Powell and friends would intervene in the Treasury market should yields rise to the point that they would erode financial conditions and threaten the Fed’s ability to deliver on its full employment mandate. This all likely means real rates remain at the lows, along the longer end of the curve too, which is gold accretive.”
“The yellow metal has a good chance to again move into $1,900/oz territory for part of 2022-23. In addition to all the macro and monetary policy ducks having to be lined up in a row, there will need to be an improvement to physical demand in China and India for our optimistic view to play out.”
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