The gold market has been driven by the contrasting effects of persistently high inflation and central banks raising interest rates in response. With the US dollar hitting a 20-year high, gold entered the second half of 2022 with a nine-month low. What are the prospects for the gold market for the rest of the year given the current macroeconomic and geopolitical environment? Should you invest in gold now?
In this article, we look at the recent drivers and gold price forecast from commodities analysts.
The Gold price dipped in anticipation of a 75-basis-point rate hike by the Federal Reserve in mid-June.
With the $1,700 an ounce range in sight, gold remains well below the $2,000 level seen in early March. Although a weaker US dollar is providing the commodity with some positive momentum, the fundamental reason for most analysts not having a longer-term bullish perspective on gold — rising US Treasury yields — remains intact.
What are the prospects for the gold market for the rest of the year given the current macroeconomic and geopolitical environment? Should you invest in gold now?
According to experts quoted by Bloomberg, “Gold competes against the bond markets as a safe haven... a potential rate hike of 75 to 100 basis points by the [Federal Reserve] might make the bond market a little more attractive to safe-haven buyers than the gold market would normally be."
Gold had climbed to a high of $2,043.30 at the end of Q1, a rise of almost 15% from the $1,800 level seen at the start of the year, as the Russia-Ukraine war escalated. That was close to the all-time high in dollar terms seen in August 2020 – above $2,070 – and a new record in euro terms.
The US Federal Reserve (Fed) has hiked interest rates three times so far in 2022. The Fed implemented a 25-basis-point hike in mid-March, a 50-basis-point increase on 4 May, and a 75-basis-point rise on 15 June — its biggest rate increase since 1994. Economists polled by Reuters expected the Fed to lift rates further by 75 basis points in July and 50 basis points in September. These expectations have the potential to limit the upside for the gold market soon.
A recession would be supportive to gold prices, but the sharp increase in interest rates being used to tackle inflation has so far been limiting the upside for the precious metal.
Limited market reaction to G7 ban on Russian gold imports
The Group of 7 has recently decided to ban the purchase of newly minted and refined gold from Russia, in the latest move by the US, Britain and their allies to ramp up sanctions on Russia in response to its invasion of Ukraine.
“Together, the G7 will announce that we will ban the import of Russian gold, a major export that rakes in tens of billions of dollars for Russia,” US President Biden wrote on Twitter on 26 June.
The market response to the move was limited, as the gold industry had already imposed far-reaching restrictions on Russian gold since Warren Patterson, Head of Commodities Strategy at ING Group's research arm THINK, commented on the move in a recent note:
It appears G7 countries are set to announce a ban on Russian gold imports, which on the surface sounds significant, given that Russia is the third-largest producer globally. However, the gold industry has already largely shunned Russian gold. The London Bullion Market Association back in March already suspended the accreditation of Russian gold refiners. This would explain why we are seeing a very limited reaction in gold prices.
Gold analysis & price predictions
Projections from several financial analysts indicate that the gold price could decline over the long term, with Australian bank ANZ projecting that gold could fall to the $1,600 level by the end of 2023.
Analysts at Arabberg.com also wrote in their recent gold investing outlook for 2022:
“Gold outperformed other precious metals in three of the last four stock bear markets. Real interest rates will likely be negative until the end of the year, and quite possibly longer, providing a good investment environment for gold. The gold price has been trading in a broad price range for two years and will eventually break out. It is very likely to see gold testing the support level of 1680 during the third quarter of 2022. On the upside, the price will need to climb above $1,900/oz to give an initial sign that the rally has resumed."
At the end of Q2, algorithm-based forecast site Wallet Investor was bullish in its long-term projections, indicating that the gold price could move to $1,913 by the end of 2022 and continue to rise over the next 5 years to $2,756.
When considering gold price predictions for 2022, it’s important to keep in mind that high market volatility makes it difficult to give long-term estimates. As such, analysts and algorithm-based forecasters can and do get their predictions wrong.
We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.