Gold price to end the year at $2,200 as stagflation fears take hold, says UOB

(Kitco News) When it comes to the gold price action, stagflation fears outweigh the expectations of a more aggressive Federal Reserve, said Singapore’s United Overseas Bank (UOB). The bank’s latest outlook on the precious metal also comes with new price projections for the year.

The key drivers for gold will continue to be inflation fears, slower economic growth, and increased demand for safe-havens.

“This mounting stagflation fear, coupled with strong safe haven in-flows, have now taken over as the dominant drivers for gold price, muting the negative impact from the anticipated rate hikes from the U.S. Federal Reserve,” said UOB head of markets strategy Heng Koon How.

Two weeks ago, gold made a run for record highs, testing the $2,070 an ounce area. The move came after the U.S. announced additional sanctions against Russia, including an oil import ban.

“Amidst the ongoing rally in energy and commodities prices since the onset of Russia’s invasion of Ukraine, there is a mounting stagflation fear amongst global investors,” Heng said.

Investors are also more inclined to allocate more towards gold. Increased demand for gold has been in the form of both ETFs and physical, the report noted.

“There are renewed in-flows to gold ETFs. Purchases of gold jewellery from individual investors will likely intensify alongside global central bank diversification of their reserves into gold,” Heng wrote. “Prior to Russia’s invasion of Ukraine, gold was trading at about $1,900. In line with this latest round of strength in gold price, there was a clear return of in-flows to gold ETFs. This renewed in-flows to gold ETFs is likely the return of safe-haven buying into gold.”

There will also be more demand from central banks, the report added. “Various central banks, particularly in the Emerging Market space, continue to diversify their reserve holdings into gold. It is likely that this onset renewed geopolitical risk due to the Russia-Ukraine conflict will reinforce this diversification trend.”

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The UOB’s updated price forecast sees gold trading at $2,100 an ounce in Q2, $2,150 an ounce in Q3, and $2,200 an ounce in Q4. This is an upward revision to the previous year-end price target of between $1,900-$2,000.

The UOB added that it was “reluctant” to raise its gold outlook in February because of the Fed’s upcoming tightening cycle.

“Back then, we left our forecast at neutral … That view is now outdated,” said Heng. “The ongoing rise in energy and commodities prices will be keenly felt in economies across the world in the months ahead as inflation rise further and growth slows down concurrently … There is now an increasing fear of stagflation by global investors and safe-haven inflows to gold now take over as a key dominant driver.”