Fed members expect three key rate hikes by the end of 2022. According to experts, this will negatively affect the gold market.
The tumultuous start of the pandemic has propelled gold prices to record highs in 2020. However, in 2021, investors seem to have lost interest in the precious metal and no longer see gold as a safe haven for their capital. Gold traded in a tight range around $1,800 an ounce all year and ended it down 3.5%.
According to Refinitiv, the decline in the price of gold was the most significant since 2015, when the metal quotes on COMEX collapsed by 10.4%. Over the past seven years, gold has fallen in price at the end of the year only once more - by 2.7% in 2018. And the maximum increase was recorded in 2020 - 24.6%.
Is there any chance that in 2022 gold will regain investor interest and continue to storm the highs?
Is gold no longer a hedge against inflation?
One of the key factors behind the weakness in prices was the lack of interest from financial investors, which are critical to the rise in gold prices, writes Bloomberg. For the year, investments in exchange-traded funds investing in gold fell by almost 9%.
The publication, in particular, notes that the key role of gold as a hedge against inflation remained on the sidelines. The metal, which used to be a popular price hedge among investors, failed to capitalize on the inflation crackdown in 2021.
“In 2021, the market really hedges inflation with segments like real estate and real estate investment funds, as well as [with] equities,” Nancy Tengler, a trader at Laffer Tengler Investments, told CNBC. In her opinion, gold prices can start to rise only if the dollar continues to weaken. However, even in this case, other precious metals may turn out to be more attractive, because “behind them is a course towards the decarbonization of the planet and green energy,” the expert noted.
“I don't think gold is a good hedge at the moment. To be honest, bitcoin or real estate would look better from my perspective,” Craig Johnson, senior technical research analyst at Piper Sandler, told CNBC.
What to expect from gold in 2022? Prospects are not very bright
Experts note that the main factor that will affect the gold market in 2022 will be the policy of the Fed. Following the results of the last meeting in 2021 (December 14-15), the American central bank decided to double the pace of curtailing the economic stimulus program. This assumes the full completion of the program in March 2022. After that, Fed members expect three rate hikes by the end of 2022.