Gold is regarded as the ultimate safe-haven asset. Central banks and governments hold a portion of their reserves in gold, enabling investors to legally use it in the global financial market. What is the outlook for the precious metal in the coming year? Many analysts expect gold prices to surge in 2022.
However, hopes for a strong recovery are vague. The year 2020 was extremely favorable to gold. However, it was replaced by a very dismal year. The precious metal has suffered huge losses this year. Nevertheless, the next year may turn out to be much more successful, experts say.
This month, gold futures have been trading at the level of $1,780, seven times higher than the low recorded in 1999, but $283 below the high of 2020. After the prosperous 2020, 2021 has been a corrective year, analysts believe. In early December 2021, gold prices slipped by 6.5% to settle at around $1,778-1,779.
This year, gold has been overshadowed by most commodity assets, stock indices, and cryptocurrencies. According to experts, many precious metals have become less attractive to investors compared to the bullish 2020. However, gold prices managed to stay firm at record highs longer than other commodities. In 2021, the gold market entered phases of a correction and consolidation.
Experts name three factors that could support the precious metal in 2022: surging inflation, interest rate hikes, and a stronger US dollar.
Inflation keeps rising in a number of countries, so regulators are making every effort to address this issue. During times of high market volatility, speculators usually shift their focus to gold. Central banks and governments continue to be net buyers of the precious metal, building up their reserves.
Other factors that could contribute to a rally in gold prices are an interest rate hike and a firmer US dollar. In mid-December 2021, the Fed announced that it would accelerate the pace of its quantitative easing taper and start raising interest rates in 2022. This led to a massive sell-off in the gold market as the stronger greenback made the precious metal more expensive for buyers. Nevertheless, gold is foreseen to regain its luster and advance in 2022.
