GOLD: Will the bounce be significant?

The price of gold is in a larger downtrend and correction but rebounds after a Fed meeting, leading many to hope Gold struck an important bottom. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory.

Gold price action through 2021 has been a disappointment as the precious metal has seen lackluster investor demand; however, according to AMB AMRO, 2022 could be a disaster as they see gold prices falling 16%.

In her 2022 gold price forecast, Georgette Boele, senior FX & precious metals strategist for the Dutch bank, said that she sees gold prices falling to $1,500 an ounce by the end of next year and dropping to $1,300 an ounce by the end of 2023.

The bearish outlook comes as the gold price has been unable to hold gains above $1,800 an ounce. February gold futures last traded at $1,795.10 an ounce, down nearly 6% on the year.

NOT EVERYBODY IS BEARISH THOUGH

The weekly price run shows that Gold bounced from $1750 again. Gold is showing strength against foreign currencies, but it must outperform the stock market if it will sustain any strength. The miners already rallied quite a bit on Gold’s reversal.

From before the US Fed decision on Wednesday to the highs on Friday, gold indexes rebounded 10%. Fed tapering is starting, which is a catalyst for a rebound in real yields. That is bearish for Gold. Although precious metals (specifically the miners and Silver) are oversold, there are too many reasons to be skeptical of this rally. History shows that precious metals typically decline in the months leading up to the first rate hike (of a new cycle). The good news is that after the start of the last four rate hike cycles, Gold has rebounded an average of 28% and Silver an average of 42%. The tide for Gold will turn after the US Fed hikes interest rates.

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