Experts at Bloomberg Intelligence point out that gold is in search for fundamentals similar to those found in 1999. Once the price bottoms out under particular fundamental conditions, the metal will be ready for a new rally.
Gold reached the rock-solid bottom at $250 in 1999. The bottom was so strong that the metal has never dipped below afterwards. Senior commodity strategist for Bloomberg Intelligence Mike McGlone believes that the precious metal is following the same scenario in 2022. Mike McGlone made this conclusion, analyzing gold traded through the US dollar versus the euro and the Japanese yen.
The difference between gold denominated in dollars and gold denominated in euros is approaching the same levels which formed the bottom for gold back in 1999. This year, gold denominated in dollars has tumbled by 10% while the gold price has grown by 5% and 10% respectively versus the euro and the yen. The ongoing aggressive monetary tightening pursued by the US Fed to struggle with inflation and push down dollar-denominated assets looks like the playback of the 20-year-old scenario. Similar pre-conditions are expected to set the stage for a gold rally like it was in 1999.
The global GDP went sharply down after major central banks had begun raising interest rates in sync, making efforts to tame soaring inflation. Gold prices are currently set for weakness against the US dollar. However, gold has been appreciating if denominated in other currencies. The phenomenon reveals an enormous strain that could disrupt the Fed's agenda for rate hikes. A difference in the spread between the dollar-denominated gold and the euro-denominated gold exposes troubles with the US currency and suggests the catalyst for the gold bottom is getting ripe. In other words, analysts might ease their expectations of further aggressive increases in the federal funds rate.
As soon as analysts detect signs that the Fed is ready to soften its stance, it will be the perfect time for gold to resume its rally. The Fed's aggressive monetary tightening is the main culprit for the gold rally in 2022.
Apparently, dollar-denominated gold is likely to fall roughly by 10% in 2022. At the same time, the US dollar index could strengthen to the same degree. Therefore, most analysts do not foresee a steady appreciation of the precious metal. One of the main triggers to make the Fed revise its policy or at least hit the pause button in its aggressive rate hikes will be a protracted downturn in the US stock market, Mike McGlone said. He predicts that the Federal Reserve and other central banks will cope well in their fight against inflation, but he foresees risks of a prolonged deflation period which could benefit the gold rally.
In a survey by Bloomberg Intelligence, prices of commodity metals are expected to fall lower.
Mike McGlone points out that a slump in the Bloomberg Industrial Metals index by almost 12% in 12 months could not be enough to predict the bottom, bearing in mind the contraction in the global money supply.
Industrial metals reached the bottom, having plummeted by nearly 60% during the financial crisis which mostly affected the US.