Data shows that gold has also historically performed well amid high inflation, and in the years when inflation was higher than 3% (US), gold’s price increased 14% on average. (Photo: Bloomberg)

Inflation, market pullbacks might maintain demand for gold as a hedge in 2022: WGC

NEW DELHI: Price hikes by central banks can create headwinds for gold, however historical past reveals their impact could also be restricted. Elevated inflation and market pullbacks, in the meantime, will seemingly maintain demand for gold as a hedge, World Gold Council (WGC) mentioned in its outlook for 2022.

As per the market growth organisation for the gold business, jewelry and central financial institution gold demand might present extra longer-term help, whereas the yellow steel might obtain constructive, if modest, help in 2022 from key jewelry markets similar to India.

Gold had completed 2021 roughly 4% decrease, closing at $1,806 per ounce. Costs rallied into year-end on the heels of the speedy unfold of the Omicron variant of coronavirus, seemingly prompting flight-to-quality flows, but it surely was not sufficient to offset the weak spot witnessed in first half.

Juan Carlos Artigas, world head of analysis, World Gold Council, mentioned, “The 2022 outlook for gold comes right down to which dynamics will tip the scales. Whereas elements like persistent inflation and jewelry demand are prone to be supportive, rising charges might create headwinds. In the end, even when gold’s worth might fluctuate, its worth as a extremely liquid hedge stays constant. This is a crucial attribute amidst ongoing covid-related market volatility and an intensifying investor threat urge for food.”

As we enter 2022, the US Federal Reserve is signalling a extra hawkish stance.

Based on WGC, gold has traditionally underperformed within the months main as much as a Fed tightening cycle, solely to considerably outperform within the months following the primary charge hike.

In the meantime, knowledge reveals that gold has additionally traditionally carried out nicely amid excessive inflation, and within the years when inflation was larger than 3% (US), gold’s worth elevated 14% on common.

WGC additionally opined that market pullbacks are prone to proceed within the face of the seemingly countless stream of recent variants, in addition to simmering geopolitical tensions and general buoyant fairness valuations fuelled by a long-lasting ultra-low-rate atmosphere.

On this context, WGC believes that gold could be a useful threat administration software in an investor’s arsenal. Gold has a confirmed historic file of mitigating the detrimental influence of fairness market pullbacks in intervals of systemic threat.

“In opposition to this backdrop, gold’s efficiency throughout 2022 will in the end be decided by which elements tip the size. But, gold’s relevance as a threat hedge will likely be notably related for buyers this yr,” WGC wrote.

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