Yoke WongGold prices climbed over the past month after falling in early September as more investment poured into the safe-haven asset amid concerns of rising inflation and slowing economic growth.
Capital.com’s chief market strategists David Jones said in his latest update on the gold market:
How could the recent macroeconomic changes impact the market? Read on for the latest spot gold price analysis to learn more.
Market overview in 2021
Gold prices have remained volatile this year in response to market anticipation of interest rate hikes and monetary tightening by the US Federal Reserve (Fed). The uncertainty caused by the Covid-19 pandemic and its economic impact have further compounded the sharp reactions in the bullion market.
Gold prices started the year above $1,900 an ounce and peaked at $1,957.20 on 6 January before crashing in the next few sessions. The precious metal was hovering at the $1,800 level before trending lower from mid-February. Gold prices fell as low as $1,685.35 on 31 March before climbing in the second quarter. The uptrend was halted in June after reaching the $1,900 level for two sessions before declining over the month.
On 10 August, gold prices fell to a four-month low at $1,729.55, amid investment outflows as the market was increasingly concerned about the Fed tightening monetary policy. Since August, gold prices have remained largely range-bound at between $1,730 to $1,810 an ounce.
Gold has been trending sideways because of a lack of investment interests as the stock market and cryptocurrencies have recovered strongly, said David Jones.
Despite the recent dip in September where gold price fell as low as $1,721 an ounce on 29 September, the precious metal remained in a three-year uptrend, he added.
Check out Capital.com’s latest video on gold technical analysis.
Spot gold prices increased in the beginning of October after falling in the previous month. Gold price settled at $1,792.30 an ounce on 21 October, up 2.1% from $1,755.60 on 1 October.
Jones listed the below key support and resistance levels for the bullion market:
Inflation has been rising globally for most of this year, which reduced the returns of other safe-haven assets such as the US dollar. Gold is often considered an inflation hedge.
Rising inflation and slower economic growth
The Consumer Price Index (CPI) in September was up 5.4% from a year ago, one percentage point higher from August and at a 13-year high, according to the US Bureau of Labor Statistics summary released on 13 October. The CPI has been rising every month since January. The index measures what consumers pay for goods and services, including clothes, groceries, restaurant meals, recreational activities and vehicles.
Additionally, economic recovery across the world continued to be hampered by a resurgence of Covid-19 outbreaks, which led to the International Monetary Fund (IMF) cutting its growth forecast earlier in October. The IMF downgraded its latest world economic outlook growth forecast this year to 5.9% in 2021, 0.1 percentage point lower compared with the previous projection in July 2021. The IMF expects the global economy to grow at 4.9% in 2022.
The IMF wrote in its World Economic Outlook report published on 12 October:
A period of inflation with an economic slowdown is known as ‘stagflation’, which “tends to support the price of gold,” said Ole Hansen, the head of commodity strategy at Danish bank Saxo Markets.
As more central banks around the world start to tighten their monetary policy, this is expected to be bearish on gold price predictions. Safe-haven assets such as gold tend to fall in value when interest rates are higher (higher interest rates can lead to increased profitability in other, riskier investment products).
As a result, ABN Amro analysts’ gold price forecast for the next 12 months is expected to be lower. Georgette Boele, senior FX and precious metals strategist at ABN Amro, said: “There are several reasons behind our negative gold price outlook. First, monetary policy will tighten globally going forward. Some central banks have already started, such the central banks of Norway, New Zealand, Brazil and South Korea. We expect the Fed to start hiking early 2023 and the Bank of England and Bank of Canada to probably hike before that.”
Boele continued: “The ECB, the Bank of Japan, the Reserve Bank of Australia, the Riksbank and the Swiss National Bank will likely hike later compared to the other central banks, but the direction is towards tightening and not easing. Only in China has the central bank been easing in piecemeal steps to support the economy.”
So, what do the latest gold price expectations for the rest of 2021 and beyond look like according to some analysts?
When considering analyst commentary and gold price projections, it’s important to keep in mind that they can and do get their estimates wrong. You should always do your own research, taking care to consider all relevant market conditions. Keep in mind that past performance is not an indicator of future returns.
Gold to lose its shine in reflation?
Historically, governments tend to implement reflation – a fiscal policy designed to expand output and stimulate spending by increasing the money supply or by reducing taxes. Hence, some expect a period of reflation to follow if the current stagflation continues.
In the scenario of reflation, investments could be diverted to other commodities or products that come with higher-risk higher-reward, the industry body World Gold Council (WGC) said. The WGC said in its report published on 12 October:
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