?? 2021 will be a mixed year for gold
?? Gold price factors that determine inflation and monetary policy
?? Gold is not expected to soar in 2022
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For gold investors, the year 2021 was rather mixed. While the Corona crisis brought the shiny precious metal to an annual high of 1,949.48 US dollars at the beginning of the year, the gold price largely stagnated at a lower level again with a few fluctuations over the course of the year, before it rose again a little more clearly in November.
The year, just like 2020, was dominated by the corona pandemic, which was very dynamic despite the development of various vaccines due to the constantly recurring corona variants. Added to this were the effects of the extremely loose monetary policy that the central banks of various countries used to support the economy during these difficult times. One keyword that caused a lot of movement here and that will remain an issue in 2022 is inflation.
Inflation remains an interesting topic
In the course of the Corona crisis and the flood of cheap money, this has increased steadily and sharply across countries. While monetary watchdogs initially assumed that high inflation rates were likely to be due to special effects and therefore only burden the economy for a short time, the central bank experts had to recognize with every month of rising consumer price data that inflation was more stable than previously assumed.
And so increased inflation rates are likely to have an impact on the gold price in 2022 as well, after all, the precious metal is considered an inflation protection and is accordingly in demand when consumer prices rise. In this regard, Deutsche Bank estimates that higher gold prices, in particular, are conceivable in the short term.
GraniteShares CEO Will Rhind was also very optimistic about the gold price outlook against the background of high inflation: “I am very positive about gold next year and the reason for this lies in the macro environment, especially inflation”. As long as inflation rates remain high, investors shouldn’t worry about the price of gold, in his opinion: “We have real inflationary pressure as long as it remains, the more problems it causes and more people will seek inflation protection.” Gold remains the method of choice for many.
Look at the US dollar
However, investors should also look at the development of the US dollar at the same time. Since the shiny metal is preferably traded in the currency of the USA, a strong dollar makes gold more expensive and therefore less attractive for investors outside America. However, as the experts at Deutsche Bank stated in their capital market outlook for 2022, this should be supported by the fact that the euro is likely to gain strength as a result of increasing economic growth in the euro zone. By the end of 2022, Dr. Ulrich Stephan, chief investment strategist at Privatkundenbank Germany, saw the euro rise to 1.20 US dollars.
Monetary policy in focus
In addition to inflation, however, there is another component that has an impact on the gold price, which is likely to have a negative impact on price developments in 2022: a tighter monetary policy by the central banks. Because the high inflation rates have already led the US Federal Reserve to cut its multi-billion dollar bond purchase program. A further tightening is already being discussed and interest rates will also rise again after the monetary authorities lowered key interest rates to an extremely low range of 0.0 to 0.25 percent in the wake of the corona crisis. However, rising interest rates have a negative impact on the gold price. Since an investment in the precious metal does not yield any interest, it becomes less attractive when other fixed-income assets return Return bring.
Winter jewelry season is likely to drive gold prices up
However, there are other factors, regardless of monetary policy and inflation, that should help the gold price rise in 2022. George Milling-Stanley from State Street sees good chances of a rising gold price, especially in the months around the turn of the year, as the gold jewelry season in emerging countries is in full swing. This was already the case in the first three months of 2021 and should repeat itself in 2022, as he estimated to CNBC. Demand is likely to be driven by the festival and wedding seasons in India as well as the Chinese New Year ceremonies. While the gold price has a rather difficult time in autumn and summer, winter is traditionally a good time for the precious metal.
While 2021 was rather a mixed year for gold, industrial metals such as copper have experienced a real boom, triggered in particular by delivery bottlenecks and material shortages. In the opinion of Mike McGlone, commodities expert at Bloomberg Intelligence, this will probably normalize again in 2022, so that the precious metal should start a moderate comeback: “In a world characterized by rapidly growing GDP debt and tapering, and given the price pullback this year [2021]”We think that gold is well positioned to resume its steady upward movement when it is valued in fiat currencies.” However, the expert also points out in a blog entry that the precious metal is facing increasing competition from the cryptocurrency Bitcoin and other digital assets looks exposed.
Gold remains attractive as a hedge
Even if the prospects for the precious metal in 2022 are rather moderately positive, Deutsche Bank commodity expert Stephan summarizes in the capital market outlook that an investment in the precious metal as a hedge of your own portfolio is still quite useful: “In my opinion, gold is not the yield generator of the hour. It belongs in the diversified portfolio because of its nature as a safeguard against setbacks on stock markets or market turbulence. ” He sees the gold price at $ 1,750 by the end of 2022.
Finanzen.net editorial team
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