2021 was a challenging year for gold prices, which dropped more than they had in six years. However, as January 2022 was drawing to a close, analysts had different views about the prospects for gold in months to come. Goldman Sachs was optimistic and changed their 12-month prediction for gold from $2,000 to $2,150, expecting US economic growth to slow down and inflation to “Generate investment demand for gold”.
Gold is considered a safe haven investment in times of high inflation or economic turmoil, and a stronger dollar often means gold prices could be pushed down because the precious metal is denominated in American currency. Therefore, the US Federal Reserve’s plans to reign in inflation might have been expected to weigh on gold prices. The fact was, though, that many fund managers did not sell their gold holdings.
One reason for this was that they expected the process of controlling inflation not to be straightforward or quick, since it would require pushing interest rates above already-high inflation figures.
All this may explain why gold prices were close to their highest points in two months near the end of January. “We see gold making higher highs and higher lows going forward”, commented Michael Cuggino of Permanent Portfolio Family of Funds. Other analysts saw the possibility of gold benefitting from a weakening dollar, and “the dollar at a minimum won’t get stronger, but at a maximum will certainly get weaker”, explained Patrick Fruzzetti of Rose Advisors.
On the other hand, other analysts foresaw a gold sell-off, such as what happened in 2013 when the US Federal Reserve announced its intentions to grow hawkish. And, of course, if the Fed does succeed in getting inflation under control in good time, or if the dollar gets stronger, this is likely to impact gold prices. If trading the price of commodities is your thing, keep reading because, in addition to gold trading at iFOREX, we’re going to take a closer look at other key commodities like copper and heating oil to speculate what 2022 might have in store.
Jeff Currie of Goldman Sachs calls copper “The most strategically important commodity” because of its role in the transition to green energy production, which is a trend that continues to gain momentum. Supply of the precious metal has seemed less than secure, however, due to community protests about new mines.
Together, Peru and Chile churn out 40% of the world’s copper, but they are dealing with more pronounced environmental and community rules on mining. “That’s just the reality around the world today”, says Richard Adkerson of Freeport-McMoran.
When left-wing president Gabriel Boric was elected to Chile’s leadership in December last year, the expectation was that he would tax the mining industry more heavily. This would not immediately hinder copper supply, but it may hold back investment in copper mining over the longer term. “That could send prices back up to record levels seen earlier (in 2021)”, wrote Bloomberg.
In November last year, Omicron emerged into a world where oil consumption was getting close to pre-pandemic levels of 100 million barrels per day. The demand for the commodity came from the need for heating oil, power, and transport. Omicron’s immediate effect was to push oil down, so that a single day saw a $10 drop in prices.
Brent Crude oil slipped by 24% from its peak for the year in November. As it turned out, oil demand held strong despite the new viral strain, so that, in the latter half of January, oil could celebrate five weeks of consecutive gains and its highest price in 17 years. Political tensions in the Ukraine threatened supplies in January, which also supported prices. Another dampener on supply had to do with technical mining obstacles.
Producing enough oil “Won’t be easy amid technical challenges and underinvestment”, said Pavel Zavalny of the Russian Duma Energy Committee. With these pressures weighing on supplies, The Bank of America even predicted oil prices to touch on $120 a barrel by the summer. Commodity prices were strong in general as 2022 got under way, but Rebecca Babin of CIBC Private Wealth Management warned that they will not “continue to be completely insulated”. And with nearly two months of winter to go in places like Europe, the heating oil crunch may remain in place, thus fuelling market volatility.
Supply and demand are the key determiners of commodity prices, and these are based on different factors in the case of each commodity. For example, the changing of the seasons makes a marked impact on the demand for heating oil. President Joe Biden’s plans to reign in oil prices by releasing strategic reserves may have some effect, but, in the opinion of Bloomberg, may “Be limited and likely short-lived”.
As we’ve seen, those engaged in CFD gold trading with iFOREX or any commodity, for that matter, need to be aware of the many views analysts take as well as other factors like geopolitical tensions that may affect the price of global commodities before making informed trading decisions.