With global inflation raging, physical gold is a must-have in your portfolio. Here's all you need to know if the king of metals is still a solid investment in 2022.
Gold is now back above its key psychological bullish mark of $1,800 which reinforces its role as a hedge against inflation. But the prospect of interest rates rising and continuing geopolitical tensions are looming over the future moves of the gold price.
Understanding the drivers of gold prices
Currencies (especially US dollar): a weaker US dollar will most likely push the gold price higher, and vice-versa.
Market uncertainty and inflation: gold often moves higher when economic conditions worsen and inflation concerns increase.
Capital flows and price momentum: investors moving their capital in or out of gold can move the gold price and create momentum in the market.
Internal gold market dynamics: these include central bank buying, mine production, and seasonal consumption.
Why gold didn’t rally in 2021?
With some of the fundamental drivers of the gold price in place, it's almost puzzling why gold didn't rebound strongly in 2021.
At least three of these main drivers for gold seemed to be present last year:
Uncomfortably hot inflation: Over the past year, inflation was the hot topic and was all over the news.
Central banks buying: Central banks definitely bought gold last year. According to the World Gold Council, central bank buying rose by an impressive 82% in 2021, with Thailand coming up as the biggest buyer (it bought as many as 90 tons of gold).
Massive money printing: This factor is not frequently mentioned as one of the key driving causes for the gold price, but it is quite essential, especially in light of the current economic instability. Last year, central banks issued money at an unprecedented rate to help their economies recover from the COVID-19 epidemic. As a result, the purchasing power of paper money has been significantly eroded.
And when paper currencies start losing their purchasing power, investors usually look for alternative stores of value to protect their wealth, turning to assets like physical gold which has maintained its value throughout centuries.
Where do top market experts see the gold price in 2022?
1. In general, analysts are bullish for gold in 2022.
The gold price could surge 20% as the precious metal will keep its inflation hedge status, according to Byron Wien, vice chairman of Blackstone's private wealth solutions business, and chief investment strategist Joe Zidle.
The price of gold rallies by 20% to a new record high. Despite strong growth in the U.S., investors seek the perceived safety and inflation hedge of gold amidst rising prices and volatility. Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share," Wien and Zidle said in a note.
2. A similar positive outlook for gold came from fund management company Fat Prophets, which said gold could reach new highs of $2,100 an ounce this year:
“We do believe that high momentum in inflation and that lower U.S. dollar is going to drive the gold price higher in 2022.”