Gold’s inability to move above $1,800 an ounce is taking its toll, with ABN AMRO now projecting for gold to end this year at $1,700 and next year at $1,500 an ounce.
“So far this year, gold prices have declined by 7.5%. The gold price outlook remains negative. We keep our year-end forecast at USD 1,700 per ounce and end of 2022 at USD 1,500 per ounce,” ABN AMRO senior precious metals strategist Georgette Boele said in a report.
Since June, gold has been stuck in a downward trend, with stronger U.S. dollar and higher U.S. Treasury yields keeping pressure on prices.
Also, markets have started to price in a quicker Federal Reserve rate hike due to inflation fears, which has weighed on gold, Boele wrote.
“Investors have adjusted their expectations regarding the Fed. They expect the Fed to hike rates quicker than they had earlier expected. Moreover, 2y U.S. Treasury yields and 2y real yields have risen to reflect this. In addition, the U.S. dollar has risen by 5% this year. Gold prices tend to weaken when the dollar rises,” she explained.
The Dutch bank remains negative on the yellow metal for the rest of this and next year, citing tighter monetary policy conditions around the world and a stronger U.S. dollar.
“Some central banks have already started, such the central banks of Norway, New Zeeland, Brazil and South Korea. We expect the Fed to start hiking early 2023 and the Bank of England and Bank of Canada to probably hike before that,” Boele said. “The ECB, the Bank of Japan, the Reserve Bank of Australia, the Riksbank and the Swiss National Bank will likely hike later compared to the other central banks, but the direction is towards tightening and not easing.”
Tighter monetary policy is usually bad news for gold as it triggers a rise in government bond yields.
“We expect the U.S. dollar to rally a bit further. This will likely be a modest increase. Higher U.S dollar is generally negative for gold prices,” Boele added.
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