Dhe inflation is higher than it has been in decades – nevertheless, 2022 does not have to be a peak year for gold investments. In any case, the analysts of the industry organization World Gold Council (WGC) describe the situation as ambivalent in their annual outlook: On the one hand, many investors turn to gold when inflation is high. On the other hand, a phase around interest rate hikes, especially in America, could be less beneficial for the gold price. When interest rates rise in the United States, interest-free gold becomes less attractive compared to other investments such as government bonds, which depresses the price. At the same time, the interest rate turnaround can make the dollar more expensive, which makes gold traded in dollars relatively less attractive in other currency areas.
Headwind from rising interest rates
Juan Carlos Artigas, the head of the council’s analysis department, says: “The prospects for gold in 2022 depend on which developments are decisive from now on. While factors such as ongoing inflation and jewelry demand are likely to have a supportive effect, rising interest rates could create headwinds. “Even if the price of gold may fluctuate, its value as a highly liquid hedge will ultimately remain constant, said Artigas:” This is an important property in the midst of the ongoing , Covid-19-related market volatility and the increasing willingness of investors to take risks. “
The gold price had recently risen again after being quite low at times in the summer. A troy ounce (31.1 grams) last cost around 1822 dollars. In dollars, he closed the year 2021 with a loss of around 4 percent to 1806 dollars. The World Gold Council emphasizes, however, that the annual balance was very different in different currencies. Gold recorded a plus of 3.3 percent in euros and even quite different price increases in weaker currencies – in Turkish lira a plus of more than 67 percent.
Central banks are likely to buy gold in 2022
In a phase with rising interest rates, the devil for the gold price is in the details, says the World Gold Council. The analysts have examined phases with interest rate hikes from the past for their effects on the gold price. First you state: “The Fed has not tightened monetary policy as aggressively as the members of the committee originally expected.” In addition, a certain pattern often emerges: In the months before a rate hike by the US Federal Reserve, the price of gold rose mostly below average, only to do significantly better in the months after that. After all, it is above all expectations for the future that are driving the gold price – the dollar also plays an important role, showing the opposite pattern. American stocks, on the other hand, had their strongest performance before a rate hike cycle, but posted weaker returns thereafter. One should not underestimate that the gold market is global, even if it is heavily dependent on America: Other central banks such as the European Central Bank are even more reluctant to raise interest rates – that could help the gold price.
Gold purchases by the central banks themselves should have a supporting effect on the gold price this year, says the World Gold Council. The same applies to gold demand for jewelry production: “We believe that the price of gold in 2022 can still receive positive, albeit modest, support from important jewelry markets such as India.”