Analysts at TD Securities (TDS) believe that gold price still has some room for the upside, despite the hawkish Fed outlook for 2022.
Key quotes
“Gold posted a mixed and a very volatile performance in 2021; it moved up to a high of just under $1,960/oz in the early days of 2021, then to a low of $1,677/oz in late-summer, followed by a rally towards nearly $1,875/oz in mid-November, before falling to $1,750s/oz by mid-December.“
“Real interest rate trends, which were driven by inflation expectations, nominal rates and Fed policy signals, led to this flux.”
“Considering this framework, and the fact that some gold market players are pricing a Fed funds hike as early as March and the possibility of an early balance sheet runoff this year, the current investor bias led to bloated short positions and has kept prices at around $1,790s/oz.”
“However, while the US central bank may be on track to raise rates, it will still provide an expansionary monetary policy. And, central banks will continue to buy gold, while investors are looking to diversify given a higher perceived risk of equity market volatility, suggesting that gold speculators' relative short positioning may still drive the yellow metal into the $1,850s/oz in the early months of 2022.”
“But, while negative real rates along the curve should protect gold from a full-blown rout, the yellow metal is projected to trade in the mid $1,600s for much of H2-2022.”
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