Most price forecasts aren’t worth more than an umbrella in a hurricane. There are so many factors, so many ever-changing variables, that even the experts usually miss the mark.
Further, some forecasters base their predictions on one issue. “Interest rates will rise so gold will fall.” That’s not even an accurate statement, let alone a sensible prediction (it’s the real rate that matters to gold).
But there is value in considering predictions. It can solidify why one has invested, point to factors that may have been overlooked, or even cause one to revise their expectations.
So while we take predictions with a grain of salt, let’s look at what might be ahead for gold in 2022 and the next 5 years. I’ll look at both the bear and bull case, and then examine the individual factors that are likely to have the biggest impact on gold. I’ll conclude with the probable prices I see based on those factors, as well as some long-term projections.
This will be fun, so let’s jump in!
The Bear Case
Surveying the landscape, I found several banks that predict lower prices for gold in 2022. Gold ended 2021 at $1,805 per ounce; here’s where they see the price going from there.
|Bank||2022 Gold Price Prediction|
|Credit Suisse||$1,561, if $1,691 is breached|
|JP Morgan||“Lower” (no price given)|
|CMC Markets||“Flat” (no price given)|
Various reasons were given as to why they’re bearish, the most common ones were related to rising interest rates and their belief that inflation will fall (wait till you see below, though).
One thing that stuck out about these predictions, however, is that most are based on one factor, which ignores a plethora of other catalysts. I’ll also note that banks are generally very conservative, and have frequently been incorrect about gold.
The Bull Case
Other analysts, especially those who work in the industry, are more positive about gold in 2022. Again, gold ended 2021 at $1,805, and here’s where they think the price is headed, along with some of their comments…
Frank Holmes, US Global Investors: “The yellow metal definitely isn’t at the right level given factors like negative real interest rates and the huge amount of money printing from G7 nations.” He also points out that since 2000, “Gold has been up 86% of the time on an average annual basis.”
Rick Rule, one of the most successful fund managers in the resources space: “Higher gold prices is a when question, not if. They don’t go higher, they go much higher. They represented 1.5%-2% of the market share in 1980, today they’re one-half of 1%… if they merely revert to the mean I believe demand will triple or quadruple. I see that happening.”
Myrmikan Research: “The dollar panic of 1980 sent gold to 133% of the Fed’s liabilities, and in 2020 that would have required gold at $20,000/oz. Currently, with the expansion of the Fed’s balance sheet, those gold prices have increased to $11,090 for one-third backing, $18,150 for 54% backing, and a potential panic high (not equilibrium price) of $44,700. The Fed’s balance sheet is sure to grow larger, increasing those figures further. It is difficult even for gold investors to imagine these prices. Yet they are what history and math suggest are coming.”
George Milling Stanley, State Street Global Advisors Head of Gold Strategy: “Our bull case scenario for gold applies a probability of 30%, with a potential trading range between $2,000 and $2,200. In this scenario, real yields remain deeply negative as the Fed remains more dovish than expected, hiking no more than once, as inflation plateaus but remains elevated. Emerging market economies outpace US growth, spurring further pressure on the USD. Volatility rises significantly driven by exogenous market shocks and tail events which increases investment demand for gold and gold-back ETFs.”
Michael Gentile, portfolio manager and advisor to several mining companies: “The only way the US can survive is negative real rates forever. Once the market realizes this situation is not transitory and that it is structural and necessary to have negative rates to fund their excessive debt, then precious metals trade much, much higher. This happens by 2023 at the latest.”
David Lennox, Fat Prophets: “Gold could test new highs of $2,100 per ounce in 2022. U.S. dollar weakness and inflation are some factors that are likely to boost precious metal’s prices, as well as geopolitical tensions between major military powers.”
Bank of America: Gold will average $1,925 in 2022, up 7% over 2021.
Blackstone Vice Chairman Byron Wien and chief investment strategist Joe Zidle: “Gold can surge 20% in the new year, as it reclaims its inflation hedge status.”
Analyst at Forbes: “With the world emerging from under the dark clouds of Covid, gold demand will recover, but with no end in sight for inflation, it will become more attractive. This will give gold a strong tailwind as the oceans of new money continue to grow still further. Demand for hard assets will continue to push prices, and with the jewelry market making a comeback, gold is set to rally.”
While some of them did not give a specific target price, most see gold making a new record high (above $2,069).
2022 and 5-Year Gold Price Forecast
Let’s examine the factors that are most likely to impact gold in 2022 and the next few years, and see if we can come up with a reasonable expectation…
Inflation. One big question is if inflation will come back down. The CPI in December 2021 (reported in January 2022) hit 7%, the highest rate in almost 40 years.
The Associated Press reported that inflation is the “biggest threat to US economy.” Many economists have said what Joe Brusuelas at RSM stated: “Regardless of how you look at it, inflation is going to be with us for a good period of time.”
Numerous food manufacturers have announced price increases. IKEA, 9%; Oreos, Ritz, Chips Ahoy 6-7%; and Kraft Heinz, General Mills and Campbell Soup all announced price increases for many products.
Part of it is supply chain problems—but it’s bigger than that. Here’s what the CEO of fertilizer giant Yara International said: “I want to say this loud and clear right now: we risk a very low crop in the next harvest. I’m afraid we’re going to have a food crisis.”
On top of that, wages are rising globally. Inflation will have a difficult time falling if wages continue to march higher.
Rising inflation is also a global phenomenon. As one example, the UK inflation rate is likely to hit 6% this year, what would be the highest in 30 years.
This chart shows the CPI reading for all of 2021. You may recall the Fed and government economists said inflation would be “transitory” last April, when the CPI spiked, but look what’s happened since.
The question is, can we trust what the Fed says about inflation when they were horribly wrong last year?
Add it all up and it seems more likely that inflation pushes higher, not lower. And gold demand jumps when inflation is higher, or rising faster, than what most people expected.
Central Banks. Central bank buying lends support to the price. As a group they’ve been net buyers for over a decade now, and ended 2021 with the highest gold holdings in 31 years.
Here’s an interesting chart… it compares the total assets of the 8 largest central banks in the world to the gold price.
If central bank assets don’t fall, it suggests the gold price will rise to catch up to them.
Vulnerable Stock Markets. The stock market just had its best three-year streak since 1999. But now it’s overvalued and vulnerable. This chart shows just how much… it’s the Buffett Indicator—stock market value divided by GDP—and you can see just how overvalued they have become relative to history.
This ratio shows that stocks are at their most expensive in history. It suggests they’re highly vulnerable to a decline.
And history shows that when stocks are weak, gold is typically strong. This chart logs the S&P 500’s biggest declines since the mid-1970s—note how gold responded.
On average, gold hedges stock market declines. So when stocks fall gold is likely to rise. It’s an ideal hedge, and the timing to build that hedge couldn’t be more clear.
Interest Rate Hikes. Many investors assume that when the Fed raises interest rates, gold will fall. But history says just the opposite. This table shows the last four Fed rate hike cycles—notice how gold performed.
Gold has a history of actually rising during Fed rate hike cycles, after the first hike was initiated. And you see this performance occurred in a relatively short period of time.
And how much can the Fed raise rates anyway? A Fed funds rate of 2% is an effective rate of 4%… and a 4% rate would require a whopping $1 trillion in interest payments!
Interest payments on the debt in 2021 was $413 billion, so a 4% rate would amount to a 142% increase, and double the percent of revenue that goes to debt. A country might be able to afford this if they have the capital, but America’s deficit spending in 2021 was $2.7 trillion, the second highest level ever; and the debt-to-GDP ratio is 125%. This makes more than doubling our debt payments unrealistic.
Government Debt. The government has continued to pile on more and more debt, yet so far gold has underperformed. Based on history, such a phenomenon appears unsustainable.
This chart shows gold’s ratio to US government debt. Notice the current basing pattern that is very similar to the kickoff of its last bull market at the turn of the century.
If this ratio plays out like it has in the past, it suggests gold is likely to rise over the next few years.
Retail Demand. Demand for gold has soared. First, US Mint sales of one-ounce gold Eagles is now at the highest level in 10 years.
Gold sales have also rebounded in China. As one example, demand for “heritage” gold jewelry (which come with higher premiums) jumped last year, and we find it interesting that sales were strongest to 20- and 30-year olds!
And in India gold imports hit a record $55.7 billion in 2021, surpassing the previous high in 2019.
Gold’s Technical Picture. A number of chartists have pointed out that gold has a strong technical setup. Here’s what Silver Chartist says about the chart below: “The ten-year cup and handle pattern is undeniably bullish. Once the previous high of $2,089 is cleared, which could take a few more quarters, upside momentum is expected to accelerate.”
While the precise timing of the next up-move is hard to pinpoint, it suggests another surge is coming in 2022.
US Dollar. A number of technical analysts have also pointed out that the US dollar is vulnerable. Dominick Graziano, a multi-millionaire trader, states here that the US dollar rally is over, which he says is confirmed by longer-term charts.
This is important because gold and the dollar are usually inversely correlated. So if the dollar falls in 2022, gold is likely to rise.
A Hint from the Miners. The gold mining industry has suddenly perked up…
- Gold exploration budgets were up 43% in 2021 ($6.2 billion).
- Junior company financings hit their highest level since 2012 ($5.5 billion).
- Over 200 more gold exploration companies were formed in 2021 than 2020.
The point to this is that mining company executives wouldn’t invest big dollars into projects unless they had confidence in the gold price. At a minimum it suggests they believe gold won’t fall much, and will probably rise.
Add It All Up. These combination of factors show there are a number of catalysts that could propel gold higher in both the short-term (one-year) and long-term (3-5 years), even if one or more doesn’t play out.
And that’s a big advantage of gold ownership: it isn’t about one factor or another, it’s about any factor that increases fear or uncertainty on the part of investors. And there are a lot of risks surrounding us at this point that could drive investors into gold.
Consider this: There is no vaccine for the coming monetary crisis. Monetary dilution will continue, as austerity is completely off the radar in the world we live in right now. This is a built-in catalyst for higher gold prices.
Because of this, my most confident prediction is that over the next few years, possibly longer, the gold price will be trading at much higher prices than where it is now, regardless of what it may do within a one-year period.
My Gold Price Predictions
My forecast for the gold price in 2022 is based on the current environment of rising inflation, negative real yields, a weaker dollar, and ongoing monetary dilution. We also have to consider the Fed’s diminishing ability to respond effectively to crisis—they are indeed trapped.
As a result, I expect the gold price to be higher in 2022. Here are my predictions.
|Potential High with No Crisis||$2,250|
|Potential High with Crisis||$2,500|
|Likelihood Gold is Higher in 2022||90%|
|5-Year Prediction||$3,000 to $10,000|
The most important message from this analysis is that even if I’m wrong, it has rarely been more important to own gold at this time in history. This means that any dips in price should be bought, especially for those that don’t hold a meaningful amount.
There are many factors that could impact the gold price, of course, in both the short and long term. Make sure your fort is fully built before the arrows start flying.