According to the updated outlook from MKS PAMP, after seeing $200 rise since the start of the year, gold has the potential to hit $2,500 an ounce and average $2,000 an ounce in 2022. The armed conflict in Ukraine and sanctions against Russia have recently drastically changed the geopolitical situation in the world. The Ukrainian conflict will unlikely be resolved during 2022. Therefore, current precious metals prices will be different from earlier forecasts, MKS PAMP head of metals strategy Nicky Shiels said. The big change in the forecast comes from increased recession risks, especially in the light of the Fed's rate hikes and slower economic growth. Gold prices kept fluctuating throughout the release of the Federal Reserve's revised monetary policy statement. The precious metal was able to retain its positions and performed quite well. In the light of upcoming rate hikes by the Fed aimed at taming inflation that hit the 40-year high, gold remained stable.
Rate hikes aimed at curbing inflation are increasing recession risks quicker than anticipated. The US is facing a risk of double-digit inflation after consumer prices hit 7.9% in February. "We originally thought a stagflationary-like backdrop would support gold. That backdrop is being accelerated with a growing risk of a hyperinflationary depression in Russia and a recession in Europe," Shiels said, adding that the structural and ongoing regime change from globalism to isolationism and the associated inward-looking trade policies exacerbated by the conflict in Ukraine are inflationary. This is why gold may average $2,000 an ounce, with the upside potential of $2,500, MKS assumed.
Increased demand is a supporting driver for gold as investors look for hedges against geopolitical uncertainty, inflation, and recession risks. MKS also updated its forecast for silver to $25 from its previous outlook of $22, citing gains from rising gold prices but noting weak industrial demand.
