The gold market is stuck between the levels of $1,750 and $1,800, which may represent the fair value of the precious metal until 2022, as inflationary pressures will decrease only next year.
Rob Howard, US Bank Wealth Management's senior investment strategist, said the global supply crisis is the most significant factor pushing inflation to levels not seen in 30 years. He added that these problems can be solved as the global economy recovers after the COVID-19 pandemic.
Even with the Fed reducing its monthly bond purchases and aiming to tighten interest rates next year, there is enough money in global financial markets to eliminate current supply constraints.
According to Howard, gold prices will return to the level preceding the pandemic next year, while the average inflation rate will be 3%.
He also said that this is not enough to stop the current economic recovery. Bond yields may rise, which in turn, will strengthen the US dollar, creating obstacles for the gold market. Nevertheless, Howard noted that his expectations about inflation are relatively moderate because there is a lot of uncertainty in the market, which may become optimistic for precious metals.
If supply chain disruptions continue to lead to higher inflationary pressures, this will lead to lower consumer spending, lower economic growth, and create a stagflationary environment.
On the wave of such uncertainty, Howard said investors should seek to diversify their portfolios, adding that the problem with gold is that investment demand will remain sluggish without stagflation.
According to him, US Bank still prefers to invest in large-cap stocks and assets such as real estate.