Fitch Solutions said on Friday it expects gold prices to trade sideways over the coming months along with bouts of volatility as conflicting factors continue to affect the asset.
On the one hand, gold is being supported by still-elevated inflation, falling US treasury yields, rising geopolitical tensions and the rapid rise in COVID-19 cases due to the Delta variant.
On the other hand, said Fitch, the US Federal Reserve's normalisation of monetary policy with tapering possibly starting before the end of 2021 as well as the continued easing of restrictions as vaccination rates continue to rise.
But a strong global economic growth outlook and temporary strengthening of US dollar will put a lid on gold prices, it added.
"For now, we maintain our 2022 gold price forecast of $1,700/oz and expect gold prices to remain elevated in the coming years compared to pre-COVID levels."
Fitch said the 2022 gold price forecast of $ 1,700/oz is underpinned by belief that gold prices will start to weaken from 2022 onwards. While inflationary pressures remain elevated, Fitch continues to believe that they are broadly transitory, with global inflation readings indicating that it is in the process of peaking.
Global inflation will most likely see a decline towards the end of Q321 and in Q421 despite remaining elevated compared to pre-pandemic levels which will put a lid on gold prices.
Besides, the Fed will most likely embark on the normalisation of monetary policy (starting with tapering before the end of 2021) which will keep gold prices on a downtrend.
Fitch forecasts that the Fed will start hiking in 2023, leading to reduced appeal for gold as bond yields trend higher amid the continued economic recovery from COVID-19. However, a number of factors will still provide some support for gold which will keep a floor under prices in the coming years such that they will not return to pre-COVID levels anytime soon.
One driver is expectation for US dollar to maintain a longer-term weakening bias. At the same time, geopolitical uncertainty which has recently flared up with US military forces' withdrawal from Afghanistan will continue to provide a tailwind to gold as a number of elections globally take place over the coming quarters.
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