Gold Price Outlook for 2022
Another tumultuous year is behind us and eyes begin to look forward to what 2022 will bring to the world. Let’s take a dive into the factors that can and will impact gold’s price action for the year ahead.
At the time of writing gold is sitting at $1,775 USD per ounce. Gold’s price has fluctuated constantly and to a great degree during this last month, ranging from $1,675 USD to a high of around $1,950 USD.
2022 is set to be a very different year than 2021. This coming year will have unique factors influencing the price of gold. Some factors are age-old while others are more a product of the moment. Each has the potential to influence the price of gold.
Without further ado and in no particular order let’s look at how each factor could impact the market.
Central Bank Interest Rate Policy
As global vaccination rates increase, and lockdown procedures become more lenient, global economic conditions are expected to improve greatly. But what does this mean?
Already stimulus packages are being reduced and central banks around the world are letting markets know that they intend to start increasing interest rates in 2022.
An environment of rising interest rates is detrimental to the price of gold. What will be most influential is how many times such interest rates are increased next year. The odds of half-point rate hikes are remarkably low, however stranger things have happened in the past. In all likelihood, there will be 2-3 quarter-point rate hikes by the United States Federal Reserve, the central banking system of America.
Gold traders recognize this and begin to price for this probability.
As the global economy recovers, equity markets should experience a strong knock-on effect.
The more gains equities make, the more likely funds from other markets will be drawn upon. Investors will be looking for the best possible returns, therefore people will be inclined to move from gold into equity markets. This could heavily influence the value of gold and there could be a correlation between the rise of equity gains and gold liquidation throughout 2022.
There are no shortages of geopolitical events both on the immediate horizon and yet to develop that will have great potential to drive the price of gold one way or another.
One event that has serious concerns for global markets involves the fear of Chinese real estate companies defaulting on their debt load. What is further concerning about such an event is the possibility of its contagion to other global economic sectors. The company that has the most people concerned is Evergrande, whose value has fallen to the lowest level in its 11-year existence.
Real estate companies defaulting on debt loads would create an environment that would instill a lot of fear in global markets. Fear-driven markets tend to move into gold as a haven as in 2020 during the earlier months of the Covid-19 pandemic. Gold prices would most likely rise as money flees declining equity markets looking for a stable safe port.
Another lingering concern from Asia is the possibility of conflict between U.S forces and the Chinese People’s Liberation Army (PLA) in the Straits of Taiwan.
There is much sabre rattling and rising levels of rhetoric from both countries involved who also happen to be the two economic superpowers of the world. Though this writer believes that there is a higher likelihood of an accidental incident occurring than an intentional one, China continues to build up its military capabilities and the western world may underestimate just how patient they can be. China will bide their time until they decide they are ready to make a move.
Though Intentional actions are a few years off at this point, the consequences of an unintended conflict cannot be stressed enough. Unintentional mishaps are a reliable way for small conflicts to accelerate and grow into a named conflict.
The moment sabre-rattling becomes sabre clashing, especially between these two influential nations states, the price of gold will explode.
Shipping lanes will be challenged. Supply chains will be disrupted. Equity markets will be negatively impacted. Global fear levels will rise exponentially. Nobody wants to see this happen, however, it cannot be discounted. This would not be the first time that build-ups of military forces in small areas resulted in accidental engagement that escalates into an all-out war, heavily influencing the global economy.
A possibly more pressing concern and the more likely event to occur is a Russian invasion of Ukraine. Militarily, the Russians would be able to do so at the high cost of loss of life on both sides. Russia has massed some 94,000 troops on the Ukrainian border and continues to add more each week.
The question needing to be asked is how would western powers react to such aggressions? That is unknown, meaning they can respond in many ways influencing vastly different outcomes. What is sure to happen would be a surge in the price of gold, however. There would be an even greater surge if there were to be any military engagements between Russian and western forces.
The next event that looms ahead is the potential for escalation of the UK-Eurozone trade dispute. Currently, the main points of contention are the status of the border between the Irish Republic and Northern Ireland and, fishing rights in the English Channel. Another point of concern is illegal migration from France to the United Kingdom across that channel.
The Irish border status has the greatest potential to escalate the tensions from a trade dispute to a full-on trade war. A trade war between the U.K and the Eurozone would be incredibly disruptive to both economies given how intertwined they are. This would adversely affect not only the U.K and European equity markets, but also influence but there would be a huge knock-on effect to global markets as well. The Pound and the Euro would also face a sharp sell-off in such an event further exasperating equity losses. The outcome of economic instability would again, most likely increase the price of gold.
Such examples are just a few of the geopolitical events that could affect the price direction of gold. There is a myriad of others that may have smaller influences, but they would likely not impact gold price as heavily, however, everything can and will have its effect.
While many commodities can be directly affected by extreme climate-related events, gold itself tends not to fall into that category. In fact, gold mining, like any extractive process has an impact on the environment. The energy required to extract and process gold emits a higher amount of greenhouse gases than is required for other metals. As global gold production increases so too do greenhouse gas emissions. Continued increases in emissions will eventually harm the global economy via climate instability.
There is growing pressure on gold producers to reduce their collective carbon footprint in the coming years. Growing pains in seeking new methods could reduce the amount of gold mined creating a shortage for the market, which will undoubtedly affect the amount of gold that is produced as they strive to sustainably bring gold to market, further increasing its price.
Disruptions to the supply chain would certainly result in higher gold prices cascading throughout the global economy, raising prices on everything from jewellery to electronics and a whole raft of other products.
Events of the past two years should be a good indicator to everyone how something that seems small has the potential to snowball into a global life-changing event.
At the time of writing, it appears that we may be on the cusp of such another event. The evolution of the Omicron Covid variant has governments and health agencies quite concerned.
Just as economies have been reducing lockdown procedures and opening up to pre-Covid activities the world once again faces border closures and a possible return to lockdown conditions.
It is too early to know how this Omicron variant is going to play out but it seems this chapter of our lives is far from over.
History has proven time and time again that the best-laid plans can and will be waylaid by things that were never anticipated. These types of events always have unintended consequences. More often than not the financial markets react with great volatility.
Volatile markets tend to act in the same way that stampeding elephants do. It is an unstoppable force that moves in one direction, then without warning will stop turn 180 degrees and retrace its steps. This tends to happen quite rapidly.
Gold Price Projections for 2022
Gold could possibly see a more subdued trading range in 2022 than it did in 2021. As the global economic recovery takes hold and central banks remove stimulus packages while simultaneously increasing interest rates, gold will probably finish off 2022 lower than it did at the start of the year. However, with the potential oncoming restrictions due to omicron, the range may still be volatile for some time.
The sell-off however, may have already begun evidenced by gold’s loss of approximately $100 USD an ounce in the last week of November 2021. This can be looked at as an indicator of how optimistic market sentiment is about the potential for economic recovery next year.
Throughout 2022 gold is seen trading as high as $1825 and as low as $1700. The higher price will be seen earlier in the year and the lower price seen near the years-end.
Gold Price – what is the conclusion?
Market volatility should be calmer next year as the planet focuses on getting economic activity back up to speed. This is where most investors will be directing their energy.
Gold will trend lower over the year and could be poised for a strong rebound in 2023 by this time next year as people start to find themselves with more disposable income.
Price predictions are tricky. The price will constantly be fluctuating and the potential for volatile movements up or down always exists. Proceed with caution.
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