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LAWRIE WILLIAMS: Precious metals get leg up at year end

The year certainly ended on a positive note for precious metals, with closing prices all receiving a strong leg up as North American markets generated some strong price rallies – particularly for gold and silver.  Indeed gold ended the year less than 2% down overall after looking as though it would finish around 5% lower than it started it.  However, it should be remembered that gold started off 2021strongly with the year’s high point of $1,793 occurring on January 4th – the year’s first full trading day!

Despite gold failing to live up to expectations in a generally downbeat year, the average metal price over the full year was a new record, despite it being well below its 2020 spot price high of over $2,000.  We are anticipating that the current year’s seemingly favourable outlook as envisaged at this point in time will bring the gold price back to close to the $2,000 level by the year end.  For our forecasts for precious metals prices this year, see Gold, silver and pgm price forecasts for 2022.

In support of our positive forecasts for gold, we quote here from Canadian consultancy Murenbeeld & Co.’s latest weekly Gold Monitor newsletter which sets out the following views regarding the positives for the gold price in the year ahead.  The consultancy is generally conservative in its gold analysis and viewpoint which should give added credence to its opinions:

Bullish Factors for gold 2022

  • Inflation is reappearing. - The post-Covid recovery is pushing inflation upwards.
  • Easy money will keep real rates depressed - Central banks will remain very accommodative: rates will remain below inflation as Central Banks keep an eye on employment.
  • The US dollar remains seriously overvalued - It will/must inevitably decline.
  • Record global debt levels will rise significantly further - Rising debt levels will keep real interest rates low indefinitely.
  • Gold demand in China and India is recovering - India and China account for 50% of global consumer demand.
  • Central banks will continue to buy/hoard gold amidst pressure to de-dollarise.
  • Geopolitical crises appear to be building again (Ukraine and Taiwan at the forefront of potential flashpoints)

Source:  Murenbeeld & Co.’s Gold Monitor, December 31 2021

Meanwhile bitcoin, which some have regarded as something of an investment safe haven in place of gold, has certainly been behaving erratically.  At the time of writing, BTC, the most heavily traded cryptocurrency, had fallen back to below $47,000, after hitting over $67,000 as recently as August.  It is prone, therefore to huge volatility which makes it a very risky asset in which to store one’s wealth.  It has made huge gains for those who have invested, and then sold, at the right time, but remains something of a gamble in the longer term and thus, in our opinion, not really suitable as a wealth protector.

Of the Murenbeeld bullish points for gold, the likely decline in the U.S. dollar index may be the most disputable.  Arguably many of the factors which perhaps should see the dollar decline are also applicable to many of its competing currencies too which could affect relative performance.  However a sharpish fall in the dollar index on Friday will have certainly contributed to the gold price rise that day.  But whether the greenback will continue to decline against other currencies remains to be seen. 

A falling dollar can also be seen as a rise in the gold price – in other words gold is often seen as a bellwether of dollar strength - but whether it is a falling dollar which drives the gold price up or a rising gold price which indicates a declining dollar, has always been a question of semantics!

Certainly rising inflation, which shows few signs yet of falling back, will continue to be a positive factor contributing towards a rising gold price.  Negative real interest rates, which result from this, have to remain a positive factor for gold as a non-interest generating asset.  However, if the U.S. Federal Reserve (the Fed) takes stronger action than so far indicated to curb inflation by raising domestic interest rates faster, and more aggressively, than currently anticipated, that could be a strong negative for gold.  A recent publication from JP Morgan Chase analysts predicting a Q4 fall in the gold price back to $1,750 sees this as a resulting likelihood, although if anything, so far the Fed has tended to err on the side of caution.

02 Jan 2022 | Categories: Gold, Silver, China, US, Palladium, Platinum, India

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