There is a growing fear that the Federal Reserve will break something in the economy by tightening too much. In this scenario, gold could be looking at new record highs this year, according to the LBMA gold price survey.
The outlook comes as markets re-price the Fed's rate hike expectations based on the new higher-for-longer interest rates theme. And now gold analysts warn that the U.S. central bank can break something in the economy by hiking too fast. Investors need to remember that monetary policy always acts with a lag, said Nicky Shiels, head of metals strategy at MKS PAMP.
Shiels is projecting the average price of $1,880 an ounce due to rising stagflation and recession risks, mixed in with higher physical demand. Based on gold's performance in the last two decades, the precious metal increased by 8% per annum, Polleit pointed out."That has compensated the investors against the inflation rate. In the last two years, gold hasn't shown a close relationship to consumer prices, but this will be temporary," he said.
Central banks bought 1,136 tonnes of gold last year, and non-Western central banks are expected to remain heavy buyers as they diversify and reduce exposure to the U.S. dollar, said Polleit.
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