Relevance up to 09:00 2021-12-24 UTC+00
The discouraging price dynamics, which plunged by 5.3% year on year, were offset by more physical activity.
This year’s price movement needs to be viewed in a broader context to get a fuller picture of where gold is moving. With regards to this precious metal, it is important to understand that the metal grew by almost 70% between the third quarter of 2018 and the third quarter of 2020.
Looking at the charts, signs that the bullish market for gold is not over can be clearly seen.
Aside from the technical picture, there are several factors next year that could push gold higher. In particular, what held gold in 2021 may shift to what will stimulate its growth in 2022.
What was holding the gold back?
Since inflation is one of the main concerns this year, many investors believed that gold would rise due to its inflation hedging properties. However, there were many other contradictory messages, including the US stock market, a strong economic recovery, the US dollar, and real yields.
The largest investment in stocks in the last 20 years was observed this year. It was the best period ever for stocks, but this is what is holding back gold’s growth. The US dollar index has risen by about 8% over this year. It also opposed gold. Looking at the yield of 10-year Treasury bonds over this period of time, Treasury bonds rose from -1.1% to -0.6%.
On top of that, five-year breakeven inflation rates are still closer to 2.5-2.7%, which means that the market estimates inflation closer to 2.5% rather than 6.5% in five years. This includes expectations of an aggressive contraction by the Fed and multiple rate hikes.
However, it is not yet clear whether inflation will be able to approach the Federal Reserve’s 2% target.
It should be noted that gold will do well after the Fed begins its rate hike cycle.
One of the opposite signals for gold bulls next year is the general sentiment indicator, which indicates a bearish forecast not only for gold but also for the entire precious metals sector as a whole.
As for the physical side, the physical gold market recovered in 2021 after the collapse of India and China in 2020. Now, many countries are increasing their gold reserves.
The global consumer demand for jewelry, gold bars, and gold coins is also improving.
The forecast for the price is as follows:
One way traders can try to determine the gold’s potential for the next year is by looking at charts when inflation exceeded 3%. The average yield of gold in US dollars in any given year was about 15% per annum. Currently, we are at $1,800, which means that the 15% rally will amount to $ 2,000 per ounce.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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