According to the World Gold Council's latest study, gold investors should be cautious as the Fed hopes to tighten its monetary policy in 2022.
The WGC report released last week noted that the precious metal still enjoys solid support albeit facing difficulties.
Analysts said that despite record low real interest rates, the gold market was struggling as investors focused on the Fed's upcoming reversal of monetary policy. Nevertheless, the WGC said that as the first interest rate hike by the US central bank approaches, the potential of gold is growing.
Historically, gold has always underperformed in the months leading up to the Fed's tightening cycle.
The Fed plans to raise interest rates four times this year. Gold is always sensitive to rate increases, but the WGC noted that investors should look at this situation much more broadly, relying on higher inflation and lower interest rates. Even if there will be a rate hike in March, this will not be enough to completely collapse inflation.
Traditionally, gold's price increased by an average of 14% when inflation exceeded 3%. At the same time, gold outpaced inflation in the US approached the money supply that has increased significantly in recent years.
In addition to monetary policy and inflation, the WGC said that a recovery in physical jewelry demand and the central bank's resumption in buying will also continue to support prices until the end of 2022.
