“Given the current uncertainty and high inflation, many market participants believed that the price of gold should receive good support. However, this did not happen. The spot price of gold is trading at its lowest level in more than two years and has fallen more than 20% from a recent high in March, leading to the start of a bear market,” Warren Patterson, head of commodities strategy at bank ING.
The dominance of the US dollar has affected sentiment throughout the commodity sector, and gold is no exception, the bank said in a report.
In addition, real yields rose despite the rapid inflation. For example, real 10-year returns in the US hit their highest level in more than a decade. “Given the strong negative correlation between gold prices and real returns, it is not surprising that gold is struggling in an environment of rising returns,” writes Patterson.
He goes on to mention a large outflow of funds from gold ETFs and a large net short position in gold on the COMEX exchange by speculators.
The bank's medium-term forecast, on the other hand, sounds much more optimistic: the first signs of easing the US Federal Reserve's policy should increase gold prices, Patterson said. “Any signs of an easing in the aggressive rate hike cycle should provide support for gold prices. For this to happen, we will probably have to see clear signs of a significant decline in inflation,” the analyst explained.
ING expects inflation to come down "quite strongly" in 2023, allowing the Fed to start cutting rates in the second half of 2023. Accordingly, they expect gold prices to rise over the next 2023.
ING predicts that by the end of the current 2022, the price of gold will be around $1,650 per ounce. Next year, the price of the precious metal is expected to rise to $1730 in the first quarter, $1780 in the second quarter, $1840 in the third quarter and $1900 in the fourth quarter.