Gold prices are likely to trade sideways in the coming months, along with bouts of volatility, as conflicting factors continue to affect the asset, Fitch Solutions said in a new report.

Gold prices have largely traded sideways in H2-21 thus far, barring a flash collapse in early August, the market research company said.  “While we expect some volatility in the months ahead, we are mostly neutral towards gold prices in the short term.”

Fitch maintained its gold price forecast for 2021 at 1,780/ounce with prices having averaged 1,803/oz in the year to date and hovering around 1,815/oz as of August 30. By 2022, the price will weaken to $1,700/oz, Fitch added.

The neutral outlook towards gold prices was due to conflicting factors. Among the supportive factors are: still-elevated inflation, low US treasury yields (the 10-year US treasury yield broke below 1.45 percent on June 1), rising geopolitical risks on the situation in Afghanistan and the rapid rise in Covid-19 caseloads across many countries due to the Delta variant.

Among the factors that might cap the rise in gold price are: the US Federal Reserve’s normalisation of monetary policy, with tapering possibly starting before the end of the year; the continued easing of restrictions as vaccination rates continue to rise, a strong global economic growth outlook (especially in the US) and the strengthening of the US dollar.

In the long-term, gold prices will start to weaken from 2022 onwards as inflationary pressures ease and the Fed most likely embarks on the normalisation of monetary policy (starting with tapering before the end of 2021), Fitch Solutions said.

The rise of cryptocurrencies as a mainstream financial asset also poses downside risks to gold over the long term, especially as younger retail investors are more likely to place new investments in cryptocurrencies at the expense of gold, it added.

(Writing by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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