Gold Digger: ‘A positive backdrop for investor demand’ prompts big banks to go bullish on gold
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Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.
ANZ’s guarded gold outlook is turning positive, with the Big 4 banks now expecting prices staying above US$1900/oz in 2022.
“We have held a cautious view on gold and the precious metal sector on the premise that tighter financial conditions would see investor demand wane,” says Daniel Hynes, senior commodity strategist at ANZ.
“However, higher than expected inflation and the subsequent negative real interest rates will provide strong support to the sector.
“Much of this is based on the upheaval in the energy sector amid the Ukraine war.”
Gold’s status as a safe-haven asset has shone brightly over the past month as the war in Ukraine dominates headlines.
“Among safe-haven assets, gold has been the outperformer since beginning of this year,” Hynes says.
“This suggests that gold holds its value during war unlike currencies, which remain vulnerable to the consequences of war and changes in monetary policies.”
Wars do not last forever, but ANZ expects “secondary impacts” of the Russia-Ukraine crisis to provide a strong level of support for gold prices this year, and beyond.
The broader isolation of Russia will see a structural shift in the energy sector, which will be inflationary, Hynes says.
There is also a higher risk of weaker economic growth, particularly in Europe.
“This should create a positive backdrop for investor [gold] demand,” he says.
“As such, we see the gold price staying above USD1900/oz, despite the prospects of an aggressive rate hike cycle by the Fed.”
Comparing gold against previous rate hike cycles supports the idea that higher rates don’t necessarily mean lower gold prices.
“Since 1970 the correlation has only been about 28% and is not considered significant,” Hynes says.
“When broken down into rate-hike cycles, gold has only finished lower once.
“In fact, some periods have seen gold rise 30–40% higher.”
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