Gold Price Forecast: XAU/USD to relish a perfect mix in the first half of 2022 – SocGen

For gold, strategists at Société Générale are moderately bullish. They see the yellow metal at $1,900 in the base case outlook. Theirr upside economic scenario would be bearish for gold, with XAU/USD falling to $1,700. In the downside economic scenario, gold prices would jump to $2,100 by mid-2022.

Base case for 2Q22 (50% probability)

“Gold at $1,900. We are still slightly bullish on the near-term. Despite Powell’s renomination and his hawkish stance, our rates strategists do not expect interest rates hikes before 2Q22. This, combined with our economists’ above-consensus inflation forecast, points to negative real rates; a perfect mix of for gold. However, our view is mainly based on our expectation that ETF outflows will cease and we will begin to see some moderate inflows by year-end and into 2022. In 2H22, we expect inflation to retreat and interest rates to slowly increase on the back of QE tapering and potential Fed hikes. We expect rising real rates to become a strong headwind for gold only in 2H22.”

Upside scenario for 2Q22 (25% probability)

“Gold at $1,700. Our upside economic scenario would be bearish for gold as it assumes new COVID-19 strains are effectively combatted via high vaccination rates and drug treatments. This would reduce risk-off sentiment, which is detrimental for gold, but more importantly would lead to easing of restrictions and thus higher services consumption. The US employment rate or initial jobless claims continuing to drop toward pre-crisis levels could see the Fed bring forward interest rate hikes vs our base case. For this gold bearish scenario to materialise, inflation needs to be kept in check.”

Downside scenario for 2Q22 (25% probability)

“Gold at $2,100. Our downside economic scenario would be bullish for gold as central banks around the world would have to keep monetary policies highly accommodative for their economies to cope with renewed COVID-19 restrictions. We estimate that this lower-for-longer rates environment combined with high inflation would see gold prices jumping to $2,100 by mid-2022. Inflation is partly fuelled by supply-chain tightness and new restrictions would worsen the issue.”