At the beginning of the second week of December, the price of yellow metal did not undergo significant changes, gaining a foothold at $1783. Towards the middle of the month, precious metal quotes rose to $1787, closing at a 3-week high, but remaining in a narrow trading range. The yellow metal did not rise significantly after the publication of data on high inflation in the United States in November (6.8%). The last time the same figure was recorded 40 years ago - in 1982. Note that in October of this year, consumer price growth was 6.2%. In one month alone, the inflation rate rose 0.6%, which is a rather alarming signal for the global economy and fiat currencies.
A significant increase in the gold exchange rate is not observed due to an improvement in the global economic situation. November's employment data in the world's top countries exceeded experts' expectations. The situation on the labor market in the United States and some leading countries of the world is generally optimistic. America's unemployment rate was substantially better than a month earlier. It declined to 4.6% (4.8% in October) and non-farm employment growth was 531,000 jobs, much higher than 312,000 jobs in October. The Canadian labor market is also recovering. The unemployment rate in November fell 0.2% to 6.7%. However, the unemployment rate in the European Union is 7.4% and has decreased by only 0.1% compared with October. Investors are positioned to buy risky assets by buying shares, as evidenced by stock market data. The situation in the cryptocurrency market resembled the May crash, when bitcoin lost about 50% and other digital currencies followed. Bitcoin is declining in price towards a support level of about 46.7 thousand dollars.
On Friday, December 17, gold prices began to rise as monetary tightening by the central banks of the largest countries in order to curb the growth in inflation rates helped increase the attractiveness of precious metal. Most experts believe that amid record inflation rates, the yellow metal is in demand as a protective asset, maintaining its current range in the region of $1760-1830. Although some analysts argue that there are indicators in the markets indicating a low likelihood of a further rise in the inflation rate. Rising inflation in Europe has raised concerns, but the European Central Bank committee does not expect excessive price increases in 2022. According to representatives of the Bank, by the middle of next year the inflation rate will decrease by 2%. However, one should also not forget that the authorities of many countries injected a huge amount of liquidity into the economy to restore it. Central banks continue to stimulate the economy by all available means, and only a number of countries are starting to tighten in order to keep price growth (inflation) within acceptable limits. The Bank of England has already raised the interest rate, while the European Central Bank announced it would halt a program of emergency asset purchases in the market in March due to the pandemic. The Bank of Japan has also decided to reduce pandemic-related financing measures. This all suggests that even if the rate of inflation in the world does not increase, then its decline should certainly not be expected in the near future.
The threat of high inflation is not the only reason for the steady growth of the gold exchange rate. As it is not unfortunate for society as a whole, a new strain of coronavirus called "omicron" and upcoming lockdowns are favorable factors for the precious metal market. At the same time, in this epidemiological situation, yellow metal is able to protect the savings of citizens. The number of cases in some European countries is constantly growing. Boris Johnson, the British prime minister, said the country faces a massive pandemic wave due to a new strain of the coronavirus. According to the World Health Organization, there is a great risk that the "omicron" will negatively affect the further course of the pandemic, since it is not afraid of the immunity developed when infected with early strains. Dr Anthony Bezos, chief medical adviser to US President Joe Biden, said in a few weeks the "omicron" would become the dominant coronavirus strain in the country. The increase in the number of cases of the new coronavirus strain convinced investors that it is necessary to invest in precious metal until the situation stabilizes.
The main event of the outgoing year for gold market participants was the decision following the results of the two-day December Fed meeting. At this meeting, the main financial regulator clarified the situation on further plans for monetary policy, reporting an acceleration in the pace of reduction in bond purchases. The Fed's announcement sent the dollar index lower relative to a basket of six-country currencies by 0.12%, to 95.92 points. The cheaper dollar supported the price of gold, which in this case becomes more affordable when it is bought in another currency.
Gold market situation
The fall in global spot prices for the yellow metal at the beginning of the month negatively affected quotes in India, China, Japan and Singapore. In India, volatility in gold prices prompted jewellers to delay purchases for the upcoming wedding season. In the Indian market, gold was $2 below world level. In China, the price of precious metal rose 11.1% to 16.6% compared to the global figure, reaching $7-10 per ounce compared to $6-9 last week. In Hong Kong, quotes exceeded the world level by $0.80 - $1.80, compared with $0.50 - $1 earlier. Last week in Singapore, quotes exceeded the world level by 1.40 - 1.80 dollars from 1.30 - 1.60 dollars. In Japan, the precious metal exchange rate exceeded the world level by $0.50.
Dick Poon, CEO of Heraeus Metals Hong Kong Ltd (China), said the excess of the global figure may be due in part to a decrease in the flow of scrap. Demand for jewelry has declined slightly, and the volume of purchases of investment coins is growing. Many individual investors buy gold to insure against risks from the spread of "omicron." In his opinion, precious metal, being a store of savings, will undoubtedly become more expensive amid rising inflation rates in the world, as well as coronacrisis, volatility and low availability of cryptocurrencies.
The good news comes from the world's leading mints. According to the US Mint, in the second week of December, 25 thousand ounces of the American Eagle gold investment coin and 7 thousand ounces of Buffalo (Bison) gold coins were sold. This indicates a consistently high level of demand for physical gold.
The theme of the Chinese New Year, the symbol of which is the tiger, is very popular with numismatists. So, for example, the Australian Mint each year mints a series of 1 ounce gold coins depicting the symbol of the coming year. This year, all 30 thousand coins with a tiger were sold in record time.
The state company AzerGold AzerGold (Azerbaijan) in only 3 months increased the volume of revenues from the sale of gold coins and bullion by 87%. In the period from September to December of this year, the company sold 1.1 thousand ounces of gold. Over the same period last year, precious metal sales amounted to 0.94 thousand ounces. Representatives of the company note that in the ІІ-om quarter, the local retail market rebounded significantly after the Center for the Sale and Exchange of Gold Coins and Bullion in Baku was opened.
Let's turn to the opinion of experts regarding the forecasts of gold for 2022
Experts of the Swiss bank Credit Suisse believe that in 2022 precious metal will continue to play the role of an inflation hedge against the backdrop of high consumer price index and the spread of a new strain of coronavirus.
Analysts of the ANZ Bank financial group (Australia) are confident that ultra-soft monetary policy on the part of central banks will be gradually curtailed, and measures to stimulate the economy, which were taken against the background of coronacrisis, will be reduced in almost all countries. The inflation rate is rising, which will keep real interest rates in the negative zone until 2022. If the growth in inflation does not stop, then this may increase the prospects of an earlier increase in interest rates and an acceleration in the pace of reduction in economic stimulus. Analysts said negative real interest rates would keep the precious metal at $1,800 an ounce in the first half of 2022. With interest rates rising in mid-2022, downward pressure on gold quotes will increase. The price of the yellow metal could be $1,600 an ounce by the end of 2022, according to a forecast by analysts at the bank.
Experts from Citibank Bank (USA) expect a significant decrease in precious metal quotes in 2022-2023. In their opinion, the upward trend in the gold market is unlikely to resume. Experts draw attention to the fact that since the beginning of this year there has been a very unstable lateral trend in the gold exchange rate. The price of precious metal was quite volatile: after pronounced rallies, large periods of correction always followed. According to bank employees, the average price of gold will be $1,685 in 2022, and in 2023 the figure will decrease to $1,500. According to the results of 2020-2021, the average cost of precious metal will be $1800 per ounce. All macroeconomic indicators suggest that an upward trend in the gold market should not be expected. For the growth of precious metal prices next year, there should be a fairly good reason related to the epidemiological or economic situation. If it appears, then the yellow metal will rise to 1825-1850 dollars per ounce. The probability of implementing this scenario is 30%. However, in the end, this is likely to only increase the long-term price minimum for gold, rather than support a steady upward movement, especially if the real yield of government bonds increases.
Analysts at JP Morgan Bank (USA) continue to adhere to the negative forecast for gold. They estimate the average cost of precious metal will be $1,630 an ounce in 2022. They attribute their forecast to a rise in the nominal yield of "treasurers."
Jim O'Neill, a British economist, argues that the situation in the global economy is very unpredictable. Therefore, it is quite difficult to predict anything. The expert believes that the next year, first of all, is unpredictable in terms of the development of the coronavirus situation. In his opinion, in addition, it is worth paying attention to the consequences of the pandemic: pitch poverty, workers' discontent and strikes. These political and social risks can significantly affect the economic situation, which is already in a precarious state due to rising inflation rates. O'Neill can't say for sure whether the increase in commodity prices is temporary or not. An important problem remains the environmental crisis, which affects productivity, labor results and the standard of living of people.
Robert Kiyosaki, founder of the Rich Dad Company and author of Poor Dad, Rich Dad, argues that the inflation rate will not stop rising next year. The best way to protect savings during a period of rising prices may be to invest simultaneously in several asset classes, including traditional ones. According to the millionaire, the following assets have the potential for growth in conditions of high inflation: gold, silver, real estate for rental.