Next year, gold may reach USD 2,200 per ounce. Banks bought record amounts
19. 10. 2021
Investing in gold is one of the safest and, in the long run, one of the most profitable investments. Saving assets into precious metals is undoubtedly a wise decision, as is known to central banks, which have been buying precious metals in bulk for the past few years. This year, the popularity of precious metals has also been boosted by the Basel III set of standards, which moved gold into the first category of assets, including e.g. cash. This makes physical gold an almost risk-free investment.
In today's article, we will look at what has motivated private investors, as well as companies and banks, to put their money into precious metals this year. The MKS PAMP Group has come up with an analysis of the past quarter and an outlook for the last quarter of this year.
Fears of lower growth, pandemics and inflation
One of the main motivational factors for people and companies to invest in precious metals in the last two years is the Covid-19 disease pandemic. The MKS PAMP Group states that the spread of the delta variant, combined with the return to schools and offices and the lack of vaccination in some countries, was leading to reduced global economic growth and mobility. As a result, the economy in the United States is expected to stagnate. Other countries expect a slowdown in production and a reduction in income from tourism.
The FED is also adding uncertainty to the situation. They have been keeping the base interest rate at low levels over the long term. Along with this, the risk of inflation is rising. Actual yields of certain products, especially bonds, have moved very low and the path for precious metals to rise has opened up.
The growing geopolitical instability that will continue to affect the world in the years to come should be also added to these “Covid problems”. This includes concerns about terrorist or cyber attacks and the growing debt of the United States.
It doesn't end with Covid
Even after mitigating the spread of the coronavirus pandemic, the situation will not be 100% calm. Less economic growth is expected. Compared to 2021, when the economy grew by around 6%, annual economic growth will fall to weak 5%. Differences in the development of national economies will grow, which will further increase imbalances. This will be mainly due to the uneven supply of vaccines to countries.
As we know, in uncertain economic times and in the case of high inflation, precious metals really thrive. This is also evidenced by the fact that gold rose by 25% in the past year, still holding a 17% increase in its price over the past two years.
However, according to the analysis, precious metals are far from their price peak.
What will be the price of gold?
The evaluation of the past period raises an important question: “What will be the price of gold in the coming period?” If you are putting money into gold gradually, at the end of 2021, you can look forward to an average price of the precious metal amounting to USD 1,800 per troy ounce, according to the forecast of the MKS PAMP Group.
In early 2022, the price is expected to rise by another $50. Next year will be quite volatile though. Two factors will have a major impact – the world's recovery from the coronavirus epidemics and the rising rate of inflation, which is slowly but surely stealing the value of money from our accounts. While the first aspect may reduce the gold price to USD 1,675 per ounce, inflation and inflation fears may support it and the gold price could rise to USD 1,965 per ounce.
However, according to the MKS PAMP Group, a very likely scenario is that the gold price will reach USD 2,200 per troy ounce next year. People will continue to fear inflation and, because of the crisis and fears of shortages, they will put their money in commodities. Central banks, which bought 10.6 million troy ounces of the precious metal in the third quarter, also believe the scenario, in which gold will be on its long-term, but also short-term rise.
Gold will probably do more than well in the coming months, but also in the next year. The commodity supercycle is still ahead of us and gold still has a long way to go in its climb to the price peak. Buying it this quarter is therefore an excellent chance to take advantage of its safe-haven qualities at a price that won't be repeated for a long time.