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The gold market remains in a long-term uptrend. Still, it needs to get through its current consolidation period, according to one investment firm.
In a report published Tuesday, analysts at Haywood Securities said they are lowering their price targets for this year through 2022 but expect to see higher prices past 2023.
Looking at the updated forecast, Haywood analysts see gold prices averaging the year around $1,800 an ounce, down slightly from the previous estimate of $1,815. For next year, the firm sees an average gold price of around $1,850 an ounce, down from $1,900. However, by 2023, the analysts said that they see prices averaging around $1,900 an ounce, up from the prior estimate of $1,800 an ounce.
The analysts said that gold faces some challenging headwinds from a stronger U.S. dollar and rising bond yields in the near term. Bond yields have pushed higher as interest rate expectations have picked up. Markets currently expect the Federal Reserve to tighten monetary policy, which includes reducing their monthly bond purchases before the end of the year and potentially raising interest rates as early as June.
However, looking at the bullish elements, the analysts said that slowing growth and rising inflation create a positive environment for the precious metal.
"With growth slowing and inflation moving higher, we are concerned that China and the broader global economy could be set for stagflation," the analysts said in the report.
"Historically, gold has fared well in stagflation environments as higher inflation and market volatility support capital preservation and lower real interest rates support opportunity cost and growth risk motives. We believe the precious metals complex is in a long-term uptrend, and longer
term macro-economic factors remain constructive. Nevertheless, gold remains a tangible, fungible, and durable store of value," the analysts added.
The comments come as the gold market continues to struggle to attract sustainable bullish momentum and remains trapped below $1,800 an ounce. December gold futures last traded at $1,792.70 an ounce, down 0.78% on the day.
Although gold prices could struggle through 2022, Haywood analysts continue to see solid value in the undervalued mining sector.
"The mining sector is trading at historic lows relative to gold and the broader market in general despite strong fundamentals offered by the sector, including market sector leading free-cash-flow yield of around 6.85%," the analysts said.
The firm said that they continue to focus on organic growth value within the mining sector. Their top picks in the intermediate junior producer space are Endeavour Mining (TSX: EDV), Equinox Gold (TSX: EQX) and K92 Mining (TSX: KNT).
Meanwhile, the firm's top picks in the exploration development space include Filo Mining (TSX.V: FIL) and Osisko Mining (TSX: OSK).
By Neils Christensen
For Kitco News
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