As the World Faces Inflation, What's Next for Gold?

As the World Faces Inflation, What's Next for Gold?
Finance

At over 8%, the United States' inflation rate has been at an all-time high since 1981. The United States is not the only nation experiencing inflation; other global markets are in the same plight. When consumers' purchasing power is constrained, they tend to gravitate toward "safe" assets such as gold. 

Perhaps this is why gold prices have begun to rise again after a ten-year decline. Its most recent reawakening happened during the 2020 pandemic crash.

Since then, the gold price has steadily risen. As a result, many investors are speculating where gold's price will go in the future. To assist you with a comprehensive viewpoint, this article will offer gold price predictions for next 5 years along with other essential factors. 

What Do Experts Think About the Gold Prediction for 2022?

Gold price forecasts for 2022 from various experts vary and are dependent on how the market reacts to inflation, central bank policies, and geopolitical concerns.

Since the beginning of 2022, excessive volatility has impacted the stock markets. At the same time, gold's value has been relatively consistent, and the increase is ongoing. Inflation is the main factor that could affect the gold market shortly. It's at its most significant level in forty years in the United States.

Gold's prominence as the best hedging instrument against inflation is projected to increase prices even more, to more than $2,000 per ounce.

Factors Influencing the Gold Value in 2022

The following factors may influence gold's value in 2022 and cause it to rise above $2,000 per ounce:

  • The price of gold must rise in 2022, but not to more than $2,000 per ounce. The following elements may help with this:

  • Beneficial fiscal and financial stimulation will lead to an increase in inflationary expectations and a weakening of the US dollar.

  • A boost in investment demand and a gradual recovery in consumer demand in China and India would support the precious metal price at a high level.

  • Government bonds will not serve as a defensive asset in the wake of inflation and adverse interest rates since they will cease to provide revenue.

  • Gold will become a larger-scale hedging instrument as geopolitical tensions worsen. At the same time, the risk of having gold decreases. This could help traders recognize the valuable yellow metal in 2022.

  • All Western countries are nearing the end of a period of unparalleled growth in the money supply. From the onset of February to the end of October 2021, the total amount of cash available in America climbed by 22%, reaching $18.8 billion. From February to September, the figure grew by 15.7% in America, Europe, and Japan.

Alternatively, volatile risk-on assets may have a negative impact on gold's value. In this scenario, the bears will lead the assault to the September 2021 lows.

Predictions for Gold Prices for the Next 5 Years

It will be somewhat simpler to foresee the gold price in the next five years than to predict it in the far future. This is because present financial fundamentals will better indicate where the gold price will go. 

When estimating commodity prices for the next five years, consider the following three factors:

Inflation

In the United States, the current inflation rate is at 8.6% as of May 2022, the highest since 1981. Other parts of the world are also encountering inflationary pressures. The purchasing power of fiat currencies tends to fall when there is inflation. 

This prompts investors to consider putting their money into more limited assets like real estate, art, and gold. If this inflation is not transitory, gold may outperform other investments over the next five years.

Global Tensions

The crisis in Europe was probably one of the biggest mysteries of 2022, which most could not have predicted. The border tensions in Europe continue to shock the stock markets. Historically, warfare has always been quite bullish on gold, considering it a safe-haven asset.

The US Public Debt

The US federal debt has reached $30 trillion. This staggering sum is now 1.6 times greater than the current GDP of the United States. Previously, the expanding US debt appeared to have little to no effect on gold prices. That could change if the national debt continues to rise.

Gold Forecast till 2027

Given that inflation may last for more than a couple of years, gold might rise from its price of $1,930 to $2,300 in the next five years. If the US government's debt becomes a concern, the cost of gold might reach $3,000 per ounce. In the improbable event of a global emergency such as war, gold's price may skyrocket to $5,000 per ounce in five years.

The Forecast for Gold Prices Over the Next Ten Years

Ten years into the future, it can be more challenging to forecast what will occur because it is more uncertain. Long-term dynamics, on the other hand, are something you can consider. Precious metals bull and bear market cycles often run 10 to 20 years. 

In the past 50 years, the gold market has experienced the following cycles:

  • Bull Market from 1970 to 1980

  • Bear Market from 1980 to 2000

  • Bull Market from 2000 to 2010

  • Bear Market from 2010 until 2020

  • Bull Market from 2020 to Present

A single ounce of gold rose in value from $35 to $500 during the 1970s gold bull market. This was an increase of 1,600%. Throughout the 2000s bull market, gold's price rose to $1,420 from a mere $280. 

It again indicated a massive rise of 600%. The gold price in 2020 was $1,773. Gold currently costs $1,930 per ounce. This is a 10% increase in the last two years. 

If you observe the gap between the two most recent bull markets and their growth, it can be expected that gold's price could rise 1,000% in the next decade from its current level. This could raise the cost of gold to $17,000 by 2032.

The Significance of a Price Prediction

Notably, future events are subject to change. The only thing that you can be sure of is uncertainty. Thus, gold price estimates should not be considered absolute. 

Nevertheless, gold projections might help you better arrange assets in your portfolio. For example, if you think gold is in a bull market, you can increase your gold holdings slightly.

Final Words

Like many other assets, gold evolves in cycles influenced by events and financial factors. Gold may move dramatically during a bull market. Consequently, it is vital to diversify your portfolio and consider some gold allocation to reap the benefits of any prospective upward swings.

 

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