Gold prices remain stuck in the yellow around $1,800 as investors expect the Federal Reserve to aggressively tighten monetary policy through 2022 to combat rising inflation pressures. But Bart Melek, head of commodities strategy at TD Securities, says market forecasts for central bank tightening may be a bit too ambitious and could bolster gold prices in the short term. We have prepared the analyst’s market comments and forecasts for the readers ofKriptokoin.com .
Analyst predicts a short-term rally in the first half
According to the CME FedWatch tool, the markets are paying for four rate hikes this year and the first move appears in March. At the same time, comments from the US central bank indicate that it may not only end its monthly bond purchases by March, but may begin shrinking its balance sheet before the end of the year.
However, Bart Melek states that sometimes what the Federal Reserve wants to do is not always compatible with what it can do. He adds that rising government debt and low and still relatively high unemployment levels could keep the Fed on the sidelines in the first half of 2022. In his latest mining report, the analyst makes the following assessment:
Poor k data following the Omicron variant and the lack of strict inflation targeting, along with the possibility of slightly less inflationary pressure, may deter the US central bank from pulling the trigger for a March increase. Consensus is also emerging in this direction.
Bart Melek says that he is positive about gold in the first half of the year and that he sees the potential for prices to exceed $1,850 in the short term. The analyst adds that there is an important bearish speculative position in the gold market. He also notes that any change in interest rate expectations could result in some short closings.
“Gold will trade at $1,600 in the second half”
Analyst predicts real interest rates will start to rise but remain in deep negative territory:
Fed Chairman Jerome Powell is not a hawk and there is still a long way to go to operate at full capacity. Policy makers will continue to make policy based on numbers. Any rate hike will not make policy restrictive for now.
However, Bart Melek states that the precious metal may face strong winds later in the year:
Negative real interest rates along the curve protect gold from a full-blown debacle. However, the yellow metal is expected to trade around $1,600 for most of the second half of 2022. The combination of inflation expectations, nominal interest rates, and Federal Reserve policy signals is predicted to re-determine how gold will behave in 2022.
TD Securities, meanwhile, is not too optimistic about silver as US monetary policy may put pressure on precious metals:
The environment is unlikely to generate significant investor confidence to lift the upside pressure from robust industrial demand and relatively weak supply growth, increasing the risk of long silver needed to create a sustainable rally.