After a quick rally above $1,850 an ounce, gold could already be running out of steam, Vecchio told Kitco News, pointing to a move in the U.S.
Treasury yields, both nominally and in real terms, move significantly higher at the start of 2022.
Vecchio sees gold ending the year at $1,800 an ounce, which is about where it is trading now.
Here in the United States, we see that it’s increasingly unlikely that the Democratic Congress is able to find consensus around a new fiscal stimulus plan, like the Build Back Better program,” Vecchio described.
If Republicans do take back control of the House, of the Senate, we go back to a situation we had in the early 2010s when you had a Democrat in the White House and Republicans in control of Congress.
This environment encourages investors to sell gold during rallies, especially if the Fed succeeds in controlling the four-decade high inflation.
“As vaccination rates continue to pick up and more lethal strains of COVID are being replaced with more manageable strains, consumers should shift their spending back towards services and away from goods.
Then why would it be able to do so in the exact opposite environment where we don’t have that fiscal stimulus, where the Fed is tightening and withdrawing its asset purchase program,” Vecchio noted.
But as we make our way into the middle part of the year, particularly in the second half of the year, that’s where I think that that gold could really see its losses accumulate,” Vecchio clarified.
First, we taper QE, then we move on to rate hikes, and in the late part of the rate hike cycle, we begin quantitative tightening — the balance sheet reduction,” he said.
Also, escalating geopolitical tensions between Russia and Ukraine or China and Taiwan could trigger another rally in gold.