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Reasons to be Bullish on Gold

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Gold was recently trading at $1,826 per ounce. Silver is now priced at $23.16 per ounce. Precious metal prices gained on Wednesday as inflation soared and the dollar fell. Despite a critical consumer price inflation data showing a historic 7 percent increase, US markets edged higher. 

With pessimistic gold news circulating as the new year drew to a close last week, you’d assume bullion would be down by double digits in 2021. However, following a great 18 percent increase in 2019, followed by another 24 percent gain in 2020, the gold price consolidated those massive gains by as much as 20 percent by Q2/2021, ending the year down only 3.5 percent.

After a policy reset last month, the Fed might raise interest rates as soon as March and is now in a “excellent position” to take even more aggressive moves against inflation if necessary. 

Despite gold’s persistent underperformance as we begin the new year, the underlying backdrop for precious metals and related mining share prices in 2022 continues to improve. 

The following are the reasons why we believe the gold price will finally increase beyond $2,000 per ounce in 2022, as well as the mining industry will reach a substantial bottom in Q1/2022:

1) Inflation has become more difficult and persistent than prior rosy forecasts by Federal Reserve Chairman Jerome Powell and other Fed officials. 

2) Real interest rates are projected to stay extremely low. Higher inflation, in combination with continuing low-interest rates, could result in negative real rates, which is usually a powerful buy signal for gold investors. 

3) The Federal Reserve’s more aggressive tapering and the likelihood of three rate rises in 2022 have already been factored into the market. 

4) Geopolitical concerns include the looming prospect of conflict between North and South Korea, which would entail the United States, as well as tensions between the United States, China, and its neighbours over Taiwan.

5) The global economy is starting to falter. Because of the spread of economic weakness, any tightening steps by central banks will be difficult to conduct without having broader ramifications. 

6) During the previous tightening cycle, which lasted from late 2015 to 2019, the Federal Reserve hiked interest rates nine times, while gold prices rose roughly 35%. In addition, the US Federal Reserve hiked interest rates 17 times between 2004 and 2005, while gold prices increased by 70%. 

7) Physical gold purchases based in India and China have skyrocketed. 

8) Central banks’ net purchases of gold bullion are anticipated to continue and may even expand. 

9) Commodity traders’ positioning is at negative extremes, which is frequently followed by short-covering rallies.

10) Gold mining stocks are selling at a significant discount while producing record cash flow.

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