The French bank Société Générale has reaffirmed its bullish stance on gold, saying it has high expectations for pricing levels going in to the first six months of 2022. The bank expects gold to move notably higher from current price levels with the precious metal taking things up a gear in both the first and second quarters. It says that low real interest rates will continue to be the base, providing momentum for the yellow metal to move back towards the record highs seen last August.
The bank’s analysts say that its understanding of market conditions point to a ‘perfect’ scenario for gold, with the Federal Reserve unable to enact any meaningful policy shift until at least the latter half of the year.
In their briefing note, they say, “Despite Powell’s renomination and his hawkish stance, our rates strategists do not expect interest rates hikes before 2Q22. This, combined with our economists’ above-consensus inflation forecast, points to negative real rates; a perfect mix of for gold.”
What’s more, Société Générale says that all indicators are that more international economies will hold fewer US dollars, as the green back’s position as the world’s reserve currency becomes further undermined. This will additionally create more demand for gold from across the international spectrum with analysts expecting that, “As the economic world becomes more multipolar, it is less important for central banks to hold USD. Central banks, especially in EM countries such as China and India, keep a low share of reserves in gold compared to western economies, and a partial catch-up would greatly support demand for the precious metal.”
There’s additional support for gold as a result of new and emerging COVID-19 variants, something we have already seen in the last couple of weeks as many countries have moved to reimpose restrictions due to the appearance of the Omicron variant. The bank says any future new strains and continuing pandemic-related disruptions will further propel gold. It noted, “Our downside economic scenario would be bullish for gold as central banks around the world would have to keep monetary policies highly accommodative for their economies to cope with renewed COVID restrictions.”
Société Générale’s expects gold prices to trade in the range of £1,439 ($1,900) and £1,590 ($2,100) between January and June, 2022 which would take gold to new all-time highs.
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