Gold & Silver Market Analysis for Wednesday 5th January

Kinesis Money 2021 Summary and 2022 Outlook for the Year Ahead

To summarise last year, there are some pivotal topics that should be mentioned. Among these, it is important to consider the continued bullish trend of stocks, with the S&P 500 up year over year (YoY) by 26.9%, and over 28% accounting for dividends. In addition to this, many commodities have achieved significant gains.  

Another crucial topic to cover here is the monetary policy of central banks. In summer 2021, the Federal Reserve started preparing the markets for the impending tapering process, otherwise understood as the reduction of the liquidity in the system. This was later announced in November of last year. 

In December, the U.S. Central Bank increased the speed of the tapering process with the target of its completion by the end of March 2022 – instead of the original plan for June 2022. This year, the number of rate hikes is expected to increase from one to three. 

As a result of the tapering process, the greenback regained strength last year, with the US Dollar index recovering 96 points. Meanwhile, the EUR/USD trading pair fell to 1.13. 

The appreciation of the American currency, the “dominant dollar”, was also favoured by the unchanged dovish attitude of the European Central Bank. However, December was witness to the conflict between Miss Lagarde’s confirmation that inflation was expected to be transitory and Jerome Powell’s statement that US price growth was no longer a transitory situation.

So, what should we expect for 2022? 

The few topics already mentioned are likely to remain central this year, and it seems they are strictly linked. Monetary policies could curb inflation, slowing down the rally of some industrial and agricultural commodities.

On top of this, the US 10 years treasury yield notably finished 2021 in the region of 1.50%, before jumping to 1.65% in the first two trading sessions of 2022. The movement of the US 10 year bond yields is certainly an indicator of inflation expectations for the next few years, and should be closely monitored.

Commodities in 2021

As mentioned, 2021 was the year of the commodity sector, especially the energy sector.

Both WTI (West Texas Intermediate, the benchmark of US oil) and North European Brent rose by more than 50%. In addition, natural gas achieved a similar performance, despite experiencing greater volatility. During late summer, the price was up 120% YTD, before slowing down in the final quarter of the year.

Another extraordinary performance was achieved by coffee, which jumped by 76%. Among agricultural commodities, cotton rose by 44% and wheat by around 22%.

Furthermore, the performance of industrial metals was positive, with copper up by 23%, nickel by 26% and zinc by 30%. Even better than this was steel, which jumped by 40%. All this, of course, exacerbated the effects of inflation, generating various problems in the supply chain. 

The scenario, as it will be pointed out, has been different for precious metals. 

Precious Metals in 2021

In 2021, precious metals were one of the few raw materials down last year. Gold posted a loss of almost 4%, while silver declined by 11%. Palladium, despite the massive gains seen during previous years, lost around 20% last year.

It should be pointed out that the negative performance of gold must be contextualised within the main macroeconomic scenario. Many investors still preferred betting on stocks, in an attempt to achieve quick gains. 

In 2021 we saw a hawkish Federal Reserve, with a growing number of rate hikes expected for 2022 – a factor that could implicitly make holding gold more expensive. 

Unlike in 2013, when the announcement of tapering generated a “taper tantrum”, the reaction of gold twas composed in 2021 with a drop of only a few percentage points, confirming the resilience of bullion to various market scenarios.

Kinesis Money Gold Analysis

In 2021, the gold price started with a decline from $1,830 to $1,800, after the recovery of US bond yields. Within the support zone of $1,800, we have seen buyers being very active, and the price now recovering to $1,815.

From a technical point of view, a new positive signal would be highlighted with the surpassing of $1,830. However, a decline below $1,800 could bring the gold price back into the lateral channel of $1,760 and $1,800.

Analysing the price in dollars per gram, bullion remains traded above $58.

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Carlo Alberto De Casa is an external Market Analyst for Kinesis Money.

He also writes as a technical analyst for the Italian newspaper La Stampa.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018.

This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.