Analysts affirm that gold showed remarkable resilience on the back of a nosedive in global financial markets in January 2022. In late 2021, the precious metal slumped 3.5% but it managed to recoup its losses. Experts share the viewpoint that gold has enough bullish momentum to win favor with investors in the short run.
The US stock market was hit by massive sell-offs at the beginning of 2022. The major US stock indices were weighed down by soaring inflation that accelerated to the strongest levels over the last 4 decades. Market participants await a series of rate hikes by the Federal Reserve.
In the face of aggressive monetary tightening, investors are seeking refuge in gold as a traditional safe-haven asset. The precious metal has gained 0.4% since early January of 2022. On February 8, April gold futures traded higher at $1,822 per troy ounce on Comex in New York.
Experts underscore considerable interest in gold as a safe-haven asset that is the common practice at the time of market turbulence. Nowadays, analysts point out that risk aversion is setting the tone for financial markets. It is bearish for the crypto market.
In late 2021 – early 2022, investors traded gold pricing in the prospects of the rate hike by the Federal Reserve. For the time being, gold is benefiting from a variety of fundamental factors such as high volatility in global markets, rampant inflation worldwide, and geopolitical jitters. Besides, monetary tightening by major central banks will also contribute to the gold rally. Nowadays regulators are just at the early stage of withdrawing generous stimulus. So, a cycle of rate hikes will nudge gold prices higher step by step.
All in all, monetary tightening is bullish for the gold market. The metal is expected to trade steadily higher amid persistent inflation in the coming months. Nevertheless, some experts warn that a series of rate hikes might be painful for gold prices after the Federal Reserve terminates its QE program in full. The alternative forecast suggests that the precious metal could pull back to $1,500 - $1,600 per troy ounce.
Most experts anticipate the Federal Reserve raising the official funds rate in March 2022. Analysts at Nomura Holdings do not rule out a sharp rate hike of 50 basis points at a time. According to economists at JPMorgan and Deutsche Bank, monetary tightening will be phased in 5 times throughout the year. The Bank of America presented the most hawkish forecast, predicting 7 rate hikes this year.
In case gold settles above $1,820 - $1,870 per troy ounce, the price is likely to test the level of $1,900. Analysts reckon that gold futures might appreciate to $2,000 provided that demand for risky assets declines. Nevertheless, it is too early to expect gold prices to trade firmly at such highs. The headwind for gold is the looming increase of the Fed’s interest rates. The gold rally will be capped by higher interest rates in the long term.
