The Outlook for Gold Amid Fed Policy Shift and BRICS Myths
The Outlook For Gold – The gold market has seen record high average annual prices in recent years, with 2022 likely to average over $1,900 per ounce – a 7-10% increase to a new all-time record. While some may claim gold is undervalued, the reality is we are seeing consistent gains to new highs driven by economic and geopolitical uncertainty.
The Outlook For Gold
CPM Group’s 2023 gold price outlook remains upbeat, with potential to average over $2,000 next year. Beyond that, recession risks in 2024-2025 could spur further safe haven gold investment. However, predictions of $10,000 gold are detached from reality. We anticipate continued gains to record highs, but grounded in economic fundamentals rather than hype.
The Federal Reserve’s fight against inflation also bodes well for gold. Markets have come around to the Fed’s stated path of measured rate hikes to around 5%. Despite fears of crashing growth, the U.S. economy remains resilient with pockets of strength. The latest 25 basis point increase may mark the peak, but the Fed will signal if more hikes are needed. Either way, real rates look set to remain low to neutral for gold.
The BRICS Gold Backed Myth
Talk of BRICS nations creating a gold-backed currency alternative to the U.S. dollar is largely unsubstantiated. Brazil, India, China and South Africa have limited gold reserves and little incentive to utilize them this way. And Russia’s frozen reserves limit its ability to back a new currency. While reduced dollar reliance is desired, true “de-dollarization” is not evident in central bank holdings.
The Global Economy and Energy Markets
Geopolitics and sanctions accelerate transitions already underway in the global economy and energy markets. Rare earth supply shortages may curb the speed of electric vehicle adoption. But new iron nitride magnets can reduce motor sizes by half, slashing rare earth demand along with copper needs. The path forward rests on using energy more wisely, not necessarily less.
In today’s complex economic environment, gold remains a prudent portfolio diversifier. But predictions of a dollar collapse or other extremes seem detached from reality. Staying grounded in economic fundamentals will help investors navigate markets in the years ahead.
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