The Bank of America recently released a forecast saying gold is likely to return to a price of $ 1,900 an ounce by 2022. They reasoned out that inflation will remain high, so real interest rates will be high as well, which is favorable to gold.
Monetary policy has long been the biggest threat to precious metals, so it is not surprising that prices are dependent on it.
But even though the Bank of America sees a potential gold rally, the momentum may be limited because the Fed could induce at least five rate hikes next year, with the first one coming in the fourth quarter.
This will surely happen if inflation remains more robust than expected, and if employment quickly recovers.
The CME FedWatch Tool backed this idea, saying that the central bank is likely to raise interest rates by June 2022. Then, it will ramp it up again to 0.75-1.00% by February 2023.
Bank of America analysts added that economic data will also determine the trajectory of interest rates.
But real rates are likely to remain negative in the near future because 10-year rates above 2% raise concerns about debt sustainability and stock markets are under pressure.
In any case, the current situation is not bad for gold, but as said earlier, growth will be limited.
