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Gold Price Outlook 2022 — factors that will affect gold stocks

January 5, 2022

O3 Mining

Gold Price Outlook 2022

 

Aside from supply and demand, several significant factors, including monetary policy, Omicron and new COVID variants, and geopolitical events, can influence the price of gold. The result of several of these issues and the combined influence they produce will determine gold’s trajectory for 2022.

 

Monetary Policy 

Monetary policy, particularly its impact on the US dollar, has been a significant driver of this year’s gold price. It will be a crucial concern for the gold price in 2022. The emergence of the pandemic threw the economy into a tailspin, resulting in unprecedented levels of money printing, with interest rates remaining near zero. These low-interest rates are negative in real terms, as are low bond yields, and fears of inflation/stagflation have increased. While central banks have indicated that they believe inflation is a transitory response to 2020’s deflationary pressures, is the continuous rise something we should be concerned about?

Experts predict the direction of monetary policy in 2022 will substantially impact the gold price, and analysts everywhere have factored this into their forecasts. If the economic recovery continues at its current pace and inflation continues to increase, we will most likely see investors turning to hedge assets. The current monetary policy and high inflation show benefits for gold, and the longer this continues, the more support the gold price will have in 2022.

 

We are into our second year of the pandemic, and most will agree that it potentially affects monetary policy. Despite somewhat effective vaccination programs in Canada, the US, Europe, and the UK, there is still a large disparity in vaccine rates globally. The emergence of the  Omicron variant has already impaired the efficacy of current vaccines. With many people still unvaccinated, new variants that may emerge can pose a further risk as the year progresses. Covid, as the last two years have demonstrated, has the ability to surprise and do so swiftly. The rate of the global economic recovery, and hence the monetary policy decisions outlined above, will be affected by how the pandemic proceeds during Q1 and whether any additional limitations are required.

 

Other factors that will affect the price of gold in 2022

 

Geopolitical tensions

Geopolitical tensions have been a major concern for markets over the past 24 months. Trade disputes, foreign legislation and sanctions hamper economic progress, while the threat of civil unrest can cause gold prices to skyrocket. Relations between the United States and countries such as China remain strained. As geopolitical disputes continue, investors seek sanctuary from uncertainty, spiralling global inflation, the economic effects of the fast-spreading Omicron version, and geopolitical disputes between the US and China.

 

Central bank demand 

After pausing in 2020 to respond to the pandemic, many central banks have resumed purchasing gold reserves in order to secure their national wealth. Many other countries have increased their gold holdings, and if this trend continues, it will keep demand strong and sustain the gold price in 2022.

 

At the time of writing, BMO Capital Markets, UBS Global Wealth Management, and Reuters reported the gold price in 2022 will average between USD 1,700 and $1,800 per ounce, sustaining December 2021 levels.

 

Other analysts, such as Trading Economics, predict that gold will average $1,963 per ounce, while Goldman Sachs predicts that $2,000 per ounce will be achieved by the end of 2021. There is evidence that the global economic recovery is already losing momentum. At the same time, some warn that inflationary pressures will be considerably more difficult to alleviate than the Fed and others realize.

 

Gold’s role as a safe haven and inflation hedge is still bolstered by many factors, which will support this. Gold price forecasts range across the board — which shouldn’t come as a surprise, as it reflects the turmoil generated by the Covid pandemic over the last 24 months. While relying solely on commodity price predictions should be approached with caution, gold is far less volatile than other assets. It has far fewer risks given the current political and economic climate.

2022 Gold Price Prediction

Gold price forecasts for 2022 vary widely, but many analysts expect gold to increase, but not at the same rate as it did in 2020. While the price of gold might not see significant gains, there are numerous advantages to purchasing gold stocks in 2022 rather than the physical metal. Gold miners and exploration companies have the potential to deliver higher total returns than actual gold investments. The reasoning behind this is that mining businesses can increase production while decreasing costs or report high-quality drill results that indicate a high probability of valuable, unmined resources. These characteristics can help gold mining firms outperform the gold price.

 

Bottom line:

The past 24 months have allowed many industries, including mining, to better prepare themselves for what lies ahead. Despite these unprecedented times, advances in technology, ESG initiatives, and swift strategic business model changes show the light at the end of the tunnel.

 

To learn more about gold investing and how O3 Mining can offer long-term value to its shareholders, contact our investor relations team today.

 

Sources:

https://www.goldmansachs.com/insights/pages/outlook-2022-the-long-road-to-higher-rates.html

https://www.bnnbloomberg.ca/wall-street-strategist-forecasts-for-2022-differ-by-second-most-in-a-decade-1.1693079

https://www.reuters.com/markets/commodities/gold-trades-tight-range-countdown-fed-verdict-2021-12-15/

https://tradingeconomics.com/commodity/gold

 

To learn how O3 Mining can add long-term value to your portfolio, contact us today.

An investor relations executive will be in touch with you shortly.

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