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Gold prices continue to languish below $1,800 an ounce as investors interpret the re-nomination of Jerome Powell to remain the head of the Federal Reserve as a hawkish development for monetary policy.
However, commodity analysts at Scotiabank said in a report Wednesday that the selloff in gold could be overdone and the precious metal price looks well supported in 2022.
The Canadian bank looks for gold prices to average next year around $1,850 an ounce, representing a 3% gain from current prices. U.S. markets are closed for the Thanksgiving holiday, but gold's spot price last traded at $1,788.30 an ounce, roughly unchanged on the day.
"The yellow metal lost almost $50/oz on Monday as news broke that U.S. President Biden would keep Jerome Powell as Chair of the Federal Reserve, which markets interpreted as a hawkish signal. Still, our forecast of above-target inflation and still-low U.S. interest rates into next year implies well-supported bullion values in 2022," the analysts said.
The gold market has struggled this week as markets start to price in more aggressive action from the Federal Reserve as inflation pressures remain at elevated levels. Wednesday Core PCE, the U.S. central bank's preferred inflation measure, saw an annual rise of 4.1% in October, the highest level since 1991.
Because of rising inflation, markets are expecting the Federal Reserve to raise interest rates as early as June with a total of three rate hikes priced in.
Although gold continues to face some headwinds, the bank sees more potential in the yellow metal compared to silver.
"Also perceived as a safe haven and an inflation hedge, the metal's value is influenced by many of the same factors as that of bullion. However, given silver's range of industrial applications and our expectations of some China-driven near-term slowdown in construction and manufacturing activity, we are less optimistic about its near-term prospects than we are for bullion," the analysts said.
The recent selling pressure in gold dragged silver down below critical psychological levels; however, the precious metal appears to be finding some support above $23.50 an ounce.
By Neils Christensen
For Kitco News
