Gold could benefit as March rate hike unlikely – TD Securities

Welcome to Kitco News’ Perspectives 2022 series. The new year will be filled with uncertainties as the Federal Reserve seeks to pivot and tighten monetary policies. At the same time, the inflationary threat continues to grow, meaning that real rates will stay in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.

(Kitco News) – Gold prices remain trapped around $ 1,800 an ounce as investors expect the Federal Reserve to aggressively tighten monetary policy through 2022 to tackle inflationary pressures increasing.

However, Bart Melek, head of commodities strategy at TD Securities, said market projections for central bank tightening could be a bit too ambitious, which could support gold prices in the near term. .

According to the CME FedWatch tool, markets are anticipating four rate hikes this year, with the first move coming in March. At the same time, comments from the US central bank suggest that not only is it looking to end its monthly bond purchases by March, but that it may start shrinking its balance sheet before the end of the year. .

However, Melek noted that sometimes what the Federal Reserve wants to do and what it can do are not always aligned. He added that growing government debt and still relatively high unemployment levels could keep the Fed on the sidelines in the first half of 2022.

“The possibility of weak economic data as a result of the Omicron variant and the manifestation of slightly less inflationary pressures, as well as the absence of strict inflation targeting, are all factors that may prevent the central bank US to pull the trigger on a March hike, as the consensus increasingly expects, ”Melek said in his latest precious metals report.

Melek said he remains positive on gold for the first half of the year and sees price potential to surpass $ 1,850 per ounce in the near term. He added that there is significant bearish speculative positioning in the gold market. Any change in interest rate expectations could create short-term hedging.

As real interest rates start to rise, they still remain in deeply negative territory, Melek said.

“[Federal Reserve Chair] Jerome Powell is no hawk, and there is a long way to go to operate at full capacity. Policymakers will continue to develop policies in response to the numbers, “he said.” Any rate hike will not make the policy restrictive for some time. “

However, Melek said the precious metal could face tough headwinds later in the year.

“While negative real rates along the curve should protect gold from a total rout, the yellow metal is expected to trade in the mid 1600s for much of H2-2022,” he said. he declares. “The combination of inflation expectations, nominal rates and Federal Reserve policy signals is expected to determine the behavior of gold again in 2022.

TD Securities is also not very bullish on silver as US monetary policy could weigh on the precious metal.

“An environment that will be dominated by discussions of a Fed tightening is unlikely to generate significant investor confidence to increase the long silver exposure needed to generate a sustained rally, canceling out the upward pressure from ‘firm industrial demand and relatively weak supply growth,’ he said.

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.

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