Singapore, June 9 Gold prices have been rising globally since April and Fitch Solutions believes there is further upside in the next few months as inflationary pressures remain elevated and pressure real bond yields.
"We expect further gains in the coming months amid rising inflation pressuring US treasury real yields, a weak US dollar and renewed waves of Covid-19 infections gripping countries across the world," it said on Wednesday.
Fitch said inflation pressures can take longer than previously thought to recede, supporting gold for longer than initially expected.
"For now we maintain our 2021 gold price forecast of USD1,780 per oz with prices having averaged USD1,804 per oz in the year to date and hovering around USD1,900 per oz."
Gold prices are likely to face significant resistance at the all-time high of USD2,075 per oz. However, there is strong support at the USD1,730 per oz mark. "We believe prices should remain firmly above this level for most of H221."
Fitch said strong base effects and persistent supply constraints are expected to maintain inflation above target across many economies in the next few months.
This helps to underpin the view for gold prices to remain supported in the near term as gold is traditionally seen as a hedge against inflation.
"We maintain our 2022 gold price forecast of USD1,700 per oz as we believe prices will start to decisively weaken towards the later part of 2021 and into 2022."
Bond yields trending higher amid a continued economic recovery from Covid-19 will reduce the appeal for gold heading into 2022, said Fitch.
While gold prices might start 2022 at a higher base than initially thought due to lingering inflation pressures in H221, central banks can start tightening earlier than planned in this environment, weakening the appeal for gold.
"The main headwind denting gold's appeal in 2022 and beyond will be easing of inflationary pressures as well as normalisation of monetary policy, including the slowing momentum of central banks' balance-sheet buying."
Over the longer term, said Fitch, the US Fed will likely embark on normalisation of monetary policy which will keep gold prices in a downtrend.
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 versus gold.
( With inputs from ANI )
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