Hard Assets Alliance
by on January 25, 2022  in Investing /
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Most price forecasts aren’t worth more than an umbrella in a hurricane. There are so many factors, so many ever-changing variables, that even the experts usually miss the mark. 


Further, some forecasters base their predictions on one issue. “Interest rates will rise so gold will fall.” That’s not even an accurate statement, let alone a sensible prediction (it’s the real rate that matters to gold).

But there is value in considering predictions. It can solidify why one has invested, point to factors that may have been overlooked, or even cause one to revise their expectations.

So while we take predictions with a grain of salt, let’s look at what might be ahead for gold in 2022 and the next 5 years. I’ll look at both the bear and bull case, and then examine the individual factors that are likely to have the biggest impact on gold. I’ll conclude with the probable prices I see based on those factors, as well as some long-term projections.

This will be fun, so let’s jump in!

The Bear Case

Surveying the landscape, I found several banks that predict lower prices for gold in 2022. Gold ended 2021 at $1,805 per ounce; here’s where they see the price going from there.

Various reasons were given as to why they’re bearish, the most common ones were related to rising interest rates and their belief that inflation will fall (wait till you see below, though). 


One thing that stuck out about these predictions, however, is that most are based on one factor, which ignores a plethora of other catalysts. I’ll also note that banks are generally very conservative, and have frequently been incorrect about gold.

The Bull Case

Other analysts, especially those who work in the industry, are more positive about gold in 2022. Again, gold ended 2021 at $1,805, and here’s where they think the price is headed, along with some of their comments… 


Frank Holmes, US Global Investors: “The yellow metal definitely isn't at the right level given factors like negative real interest rates and the huge amount of money printing from G7 nations.” He also points out that since 2000, “Gold has been up 86% of the time on an average annual basis.”

Rick Rule, one of the most successful fund managers in the resources space: “Higher gold prices is a when question, not if. They don’t go higher, they go much higher. They represented 1.5%-2% of the market share in 1980, today they’re one-half of 1%... if they merely revert to the mean I believe demand will triple or quadruple. I see that happening.”

Myrmikan Research: “The dollar panic of 1980 sent gold to 133% of the Fed’s liabilities, and in 2020 that would have required gold at $20,000/oz. Currently, with the expansion of the Fed’s balance sheet, those gold prices have increased to $11,090 for one-third backing, $18,150 for 54% backing, and a potential panic high (not equilibrium price) of $44,700. The Fed’s balance sheet is sure to grow larger, increasing those figures further. It is difficult even for gold investors to imagine these prices. Yet they are what history and math suggest are coming.”

George Milling Stanley, State Street Global Advisors Head of Gold Strategy: “Our bull case scenario for gold applies a probability of 30%, with a potential trading range between $2,000 and $2,200. In this scenario, real yields remain deeply negative as the Fed remains more dovish than expected, hiking no more than once, as inflation plateaus but remains elevated. Emerging market economies outpace US growth, spurring further pressure on the USD. Volatility rises significantly driven by exogenous market shocks and tail events which increases investment demand for gold and gold-back ETFs.”

Michael Gentile, portfolio manager and advisor to several mining companies: “The only way the US can survive is negative real rates forever. Once the market realizes this situation is not transitory and that it is structural and necessary to have negative rates to fund their excessive debt, then precious metals trade much, much higher. This happens by 2023 at the latest.”

David Lennox, Fat Prophets: “Gold could test new highs of $2,100 per ounce in 2022. U.S. dollar weakness and inflation are some factors that are likely to boost precious metal’s prices, as well as geopolitical tensions between major military powers.”


Bank of America: Gold will average $1,925 in 2022, up 7% over 2021.

Blackstone Vice Chairman Byron Wien and chief investment strategist Joe Zidle: “Gold can surge 20% in the new year, as it reclaims its inflation hedge status.”

Analyst at Forbes: “With the world emerging from under the dark clouds of Covid, gold demand will recover, but with no end in sight for inflation, it will become more attractive. This will give gold a strong tailwind as the oceans of new money continue to grow still further. Demand for hard assets will continue to push prices, and with the jewelry market making a comeback, gold is set to rally.”

While some of them did not give a specific target price, most see gold making a new record high (above $2,069).

2022 and 5-Year Gold Price Forecast

Let’s examine the factors that are most likely to impact gold in 2022 and the next few years, and see if we can come up with a reasonable expectation… 


Inflation. One big question is if inflation will come back down. The CPI in December 2021 (reported in January 2022) hit 7%, the highest rate in almost 40 years.

The Associated Press reported that inflation is the “biggest threat to US economy.” Many economists have said what Joe Brusuelas at RSM stated: “Regardless of how you look at it, inflation is going to be with us for a good period of time.”


Numerous food manufacturers have announced price increases. IKEA, 9%; Oreos, Ritz, Chips Ahoy 6-7%; and Kraft Heinz, General Mills and Campbell Soup all announced price increases for many products.

Part of it is supply chain problems—but it’s bigger than that. Here’s what the CEO of fertilizer giant Yara International said: “I want to say this loud and clear right now: we risk a very low crop in the next harvest. I'm afraid we're going to have a food crisis.”

On top of that, wages are rising globally. Inflation will have a difficult time falling if wages continue to march higher.

Rising inflation is also a global phenomenon. As one example, the UK inflation rate is likely to hit 6% this year, what would be the highest in 30 years.

This chart shows the CPI reading for all of 2021. You may recall the Fed and government economists said inflation would be “transitory” last April, when the CPI spiked, but look what’s happened since.

The question is, can we trust what the Fed says about inflation when they were horribly wrong last year? 


Add it all up and it seems more likely that inflation pushes higher, not lower. And gold demand jumps when inflation is higher, or rising faster, than what most people expected.

Central Banks. Central bank buying lends support to the price. As a group they’ve been net buyers for over a decade now, and ended 2021 with the highest gold holdings in 31 years.

Here’s an interesting chart... it compares the total assets of the 8 largest central banks in the world to the gold price.

If central bank assets don’t fall, it suggests the gold price will rise to catch up to them. 


Vulnerable Stock Markets. The stock market just had its best three-year streak since 1999. But now it’s overvalued and vulnerable. This chart shows just how much… it’s the Buffett Indicator—stock market value divided by GDP—and you can see just how overvalued they have become relative to history.

This ratio shows that stocks are at their most expensive in history. It suggests they’re highly vulnerable to a decline. 


And history shows that when stocks are weak, gold is typically strong. This chart logs the S&P 500’s biggest declines since the mid-1970s—note how gold responded.

On average, gold hedges stock market declines. So when stocks fall gold is likely to rise. It’s an ideal hedge, and the timing to build that hedge couldn’t be more clear. 


Interest Rate Hikes. Many investors assume that when the Fed raises interest rates, gold will fall. But history says just the opposite. This table shows the last four Fed rate hike cycles—notice how gold performed.

Gold has a history of actually rising during Fed rate hike cycles, after the first hike was initiated. And you see this performance occurred in a relatively short period of time. 


And how much can the Fed raise rates anyway? A Fed funds rate of 2% is an effective rate of 4%... and a 4% rate would require a whopping $1 trillion in interest payments!

Interest payments on the debt in 2021 was $413 billion, so a 4% rate would amount to a 142% increase, and double the percent of revenue that goes to debt. A country might be able to afford this if they have the capital, but America’s deficit spending in 2021 was $2.7 trillion, the second highest level ever; and the debt-to-GDP ratio is 125%. This makes more than doubling our debt payments unrealistic.

 

Government Debt. The government has continued to pile on more and more debt, yet so far gold has underperformed. Based on history, such a phenomenon appears unsustainable.

This chart shows gold’s ratio to US government debt. Notice the current basing pattern that is very similar to the kickoff of its last bull market at the turn of the century.

If this ratio plays out like it has in the past, it suggests gold is likely to rise over the next few years. 


Retail Demand. Demand for gold has soared. First, US Mint sales of one-ounce gold Eagles is now at the highest level in 10 years.

Gold sales have also rebounded in China. As one example, demand for “heritage” gold jewelry (which come with higher premiums) jumped last year, and we find it interesting that sales were strongest to 20- and 30-year olds! 


And in India gold imports hit a record $55.7 billion in 2021, surpassing the previous high in 2019.

Gold’s Technical Picture. A number of chartists have pointed out that gold has a strong technical setup. Here’s what Silver Chartist says about the chart below: “The ten-year cup and handle pattern is undeniably bullish. Once the previous high of $2,089 is cleared, which could take a few more quarters, upside momentum is expected to accelerate.”