After hitting an all-time high of above $2,000 an ounce in August 2020, gold prices steadily declined over the year’s fourth quarter. For most of 2021, gold has tried to regain those record highs without success, even though it started the year at $1,900 an ounce.
Anticipation of interest rate hikes and monetary tightening by the US Federal Reserve (Fed) as well as the economic impact of the Covid-19 pandemic have put a lid on price gains and kept gold in range-bound trading at the $1,800 a tonne level.
In the final quarter of this year, gold has been given a boost by the prospect of central banks raising interest rates amid rising inflation.
The US inflation rate has jumped to 6.2%, the highest in three decades. On 17 November, data showed that the UK’s Consumer Prices Index (CPI) broke through the 4% barrier to hit 4.2% for October. It’s the highest since 2011 and more than double the Bank of England’s target rate of 2%.
Meanwhile, gold consolidated at $1,864 an ounce on 17 November, according to World Gold Council data.
Amid economic uncertainty, what is the long-term gold outlook?
Gold price analysis and overview 2021
According to data compiled by the World Gold Council, the gold price opened 2021 trading at $1,943.20 an ounce on 4 January. But the precious metal failed to kick on and steadily declined to a low of $1,683.95 an ounce on 30 March.
Prices started to climb in the second quarter, breaking the $1,900 level in early June. But the gain halted and the metal continued its downtrend. The gold price dropped by 6.6% in the first half of 2021, according to the World Gold Council in its mid-year outlook 2021.
Gold had been held up by supporting factors, according to the council, including concerns over higher inflation. The strong response from governments to aid economic recovery through monetary and fiscal policies has made some investors wary of currency risks and capital preservation.
The gold price traded in the $1,700 to $1,800 range over the third quarter of 2021, pressured by rising interest rate yields.
In the third quarter, the gold price fell by 1.4%, partly due to a slump in investment demand amid a rise in interest rate yields, according to the World Bank’s Commodity Monthly Outlook.
The 10-year US Treasury’s yield increased by 10 basis points in September and the dollar strengthened. This after the Fed signalled that it would begin to scale back its bond purchases before the end of the year. Central banks have also reduced gold purchases in recent months.
Entering the fourth quarter, gold started to flip its downtrend, gaining 1.5% over October to $1,786 an ounce and tested $1,800 several times, according to the World Gold Council on 5 November.
Rising inflation expectations and a weaker US dollar supported gold prices in October, despite gains in stock indices in the US and Europe and stronger commodities led by surging oil prices. Usually, stronger stock markets and commodities dampen investors’ appetite for non-yielding gold.
Gold price forecast 2021-2022: Short-term outlook
Inflationary pressures could support gold prices for the rest of the year, but analysts forecast that the precious metal might retreat next year if the global economic recovery gathers speed.
ANZ Research in a note of 16 November said that inflation expectations are supporting the gold price, lifting it above its price target level of $1,850 an ounce. The company expected prices to retreat in 2022 as the economic recovery develops.
In a note from 11 November, Fitch Solutions maintained its neutral outlook for gold in the short-term because of “conflicting factors”. It kept its expected gold price forecast at $1,780 an ounce for 2021 and $1,700 for 2022.
On the one hand, rising inflation, historically low US treasury yields, geopolitical risks, and the resurgence of Covid-19 cases across the world supported gold.
However, Fitch noted that the Fed’s normalisation of monetary policy, continued easing of restrictions as vaccination rates continue to rise and a strong global economic growth outlook might put a lid on gold prices.
Fitch said that it expected that the Fed’s tapering program will be completed in June followed by rate hikes in late 2022. Rate hikes make bonds more attractive, prompting investors to switch their investment from gold to high-yield bonds and other fixed-income investments.
The World Bank estimated that gold prices will average nearly 1.5% higher in 2021 and fall by 2.5% in 2022, weighed down by higher yields.
Gold price predictions for next 5 years: Long-term gold outlook
There are conflicting views in long-term gold price forecasts.
Ole Hansen, Head of Commodity Strategy at Danish lender Saxo Bank, said he believes that precious metals, including gold and silver, will be trading higher over the coming years as an ongoing commodity super-cycle rally lifts the whole commodity sector.
In addition, the risk of longer term rising inflation could attract demand for safe haven assets, such as gold, said Hansen by email to Capital.com
“Inflation is increasingly becoming a question about demographics, with an ageing population leaving fewer people able to work in a position to demand higher wages,” he said.
He added that the global fight against climate change will keep prices elevated due to the scarcity of many key commodities used to successfully navigate this transformation.
Some other experts believe that the projected gold price may weaken further after 2021.
The Australian Government’s Office of Chief Economist in September’s Resources and Energy Quarterly forecast that gold prices after 2021 will fall by an average 4.3% a year to $1,634 an ounce in 2023, due to the recovery of the global economy and a higher interest rate environment.
Considering the gold rates for the next 5 years and beyond, the World Bank forecast gold price to fall to $1,663 an ounce in 2023, from $1,711 in 2022, dropping to $1,623 and $1,584 in 2024 and 2025, respectively. It expects gold prices to average $1,394 and $1,350 in 2030 and 2035.
Fitch Solutions in September forecasted the gold price to average $1,650, $1,620 and $1,610 for 2023, 2024 and 2025, respectively.
According to analysts' views outlined above, in the short-term, gold prices are forecast to ease in 2022, mainly because the global economic recovery is expected to pick up and the Fed to normalise monetary policy. But for longer term forecasts beyond 2022, analysts’ gold price predictions vary.
Global economic growth, inflation rates, the US treasury yield, interest rate policies and geopolitical risks all affect the gold price.
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