New Delhi: Rate hikes by central banks may spell trouble for gold, but history shows that their impact may be limited. The World Gold Council (WGC), in its outlook for 2022, said inflation and market volatility, as a hedge, are likely to sustain demand for gold.
According to the Market Development Organization for the Gold Industry, jewelery and central bank gold demand may provide additional long-term support, while the yellow metal may receive positive, if modest, support in 2022 from major jewelery markets such as India.
Gold had closed at $1,806 an ounce in 2021, down nearly 4%. Prices rallied towards the end of the year on the heels of the rapid spread of the Omicron version of the coronavirus, possibly spurring flight-to-quality inflows, but that wasn’t enough to offset the weakness seen in the first half.
Juan Carlos Artigas, Global Head of Research, World Gold Council, said: “The 2022 outlook for gold comes down to which dynamics will turn the scales. While factors such as persistent inflation and demand for jewelery are likely to be helpful, rising rates are unfavourable. Ultimately, even though the price of gold may fluctuate, its value remains consistent as a highly liquid hedge. Market volatility related to the ongoing COVID and an intense investor risk appetite It is an important feature among the
The US Federal Reserve is indicating a more rigid stance as we enter 2022.
According to the WGC, gold has historically underperformed in months leading up to a cycle of Fed tightening, only to outperform significantly in the months following the first rate hike.
Meanwhile, data shows that gold has historically performed well even amid high inflation, and in years when inflation was above 3% (US), the price of gold rose an average of 14%.
WGC also believes that the market will continue to be volatile due to the endless stream of new variants as well as geopolitical tensions induced by the prolonged ultra-low-rate environment and overall buoyant equity valuations. is likely to.
In this context, the WGC believes that gold can be a valuable risk management tool in an investor’s arsenal. Gold has a proven historical record of mitigating the negative impact of equity market volatility in periods of systemic risk.
“Against this background, gold’s performance during 2022 will ultimately be determined by which factors tip the scale. Nevertheless, the relevance of gold as a risk hedge will be of particular relevance to investors this year,” the WGC wrote.
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