The reaction of the precious metals market to the last meeting of the Fed, at which the Fed confirmed a sharp tightening of its policy, shows that all possible tightening was already included in prices. With a two-fold acceleration in the cuts in the buyback program and the announcement of three rate hikes next year, gold met with growth, turning from key support at $1,750 an ounce. This allows us to hope for the end of the protracted large correction, the correction that has been going on since August last year, and the rise of a bullish trend with very ambitious goals.
The scale of the correction is such that future growth should be comparable to the growth before the correction and the technical picture is in favor of the fact that next year gold will at least rewrite the historical maximum, and possibly show a much stronger result.
Tightening of the Fed’s monetary policy will not interfere with this, since real risk-free rates will remain deeply negative even after tightening, and inflationary risks will continue to dominate. We do not expect their significant decline, as we expect the preservation of fairly good economic dynamics in the United States. The new strain of coronavirus, which the markets feared at the end of this year, is more infectious, but much less dangerous, and it is possible it will put an end to the pandemic.
If these expectations are met, next year will be the year of recovery for sectors of the economy, overwhelmed by the pandemic. This will add inflationary pressures that central banks cannot easily deal with without harming the stability of financial markets with their tough actions. And the stability of financial markets, we are sure will remain a top priority for key central banks.
Thus, next year, with a high probability, may become a year of disappointment in the ability of central banks to quickly cope with high inflation, which will become the main driver of growth in prices for precious metals. However, it is worth keeping in mind the risk that the Fed may overdo it with tightening monetary policy, as it previously overdid it with monetary stimulus.
In this negative scenario, next year may become a remake of 2008, when in the first half of the year there was a strong increase in all commodities, which ended in a sharp drop during the mortgage financial crisis.
Gold in a positive scenario is able to rearrange the historical maximum and continue the upward trend towards targets around $2500 per ounce and even slightly higher. In a negative scenario, we assume a fall to $1600 per ounce, but not below.
Silver is likely to show similar dynamics to gold, but, traditionally, it will be more volatile. Whether it overtakes gold or not will largely depend on economic growth. In a positive scenario, when, against the background of high inflation, relatively high rates of economic growth remain in key economies – in the EU, USA, China, silver will show outstripping dynamics. However, if the pace of economic growth begins to fall, and the risks of a pandemic persist, do not expect better results from silver than from gold.
In our baseline “average” scenario, silver is capable of returning to the highs of the outgoing year above $26 per ounce. At the same time, in a negative scenario, in which gold will decline due to the risks of a repeated recession in the US, silver will lose more gold in price and may drop slightly below $20 per ounce.
Platinum in the outgoing year suffered from a decrease in industrial demand associated with a reduction in production by global auto giants amid disruptions in the supply of chips. We expect industrial demand for platinum to recover next year, as logistical problems are a thing of the past. In addition, the demand for platinum will begin to show more and more hydrogen energy. The recovery in industrial demand amid the overall strength of the precious metals market will allow platinum to return to prices above $1,100 an ounce. In a negative scenario, the metal will also show the dynamics worse than gold and is able to test strong support around $870 per ounce.
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Precious metals remain the most important defensive asset, the pricing of which is largely influenced by the positions on ETFs of large players. Thus, their dynamics correlate with the dynamics of a decrease in risk appetites against the backdrop of a crisis and turbulence.
So, in the first months of 2022, the world will have to grapple with a new South African strain, which could force investors to shift money into defensive assets. In general, the coronavirus pandemic is still far from over, which plays in favor of precious metals.
At the same time, in 2 years humanity has become much more effective in combating COVID-19, which in general leads to a gradual economic growth and recovery from the waves of the pandemic. Hopefully, in 2022, manufacturers will get out of the crisis, which will increase the demand for precious metals in various industries.