Even though consumer prices were higher in November, gold is on the path of ending the year at is lowest since 2015. This is disappointing to investors who thought the metal would cushion them from the effects of inflation. In the last couple of months, governments have been printing “new” money. This has had a lot of people worried about the impact this move will have on the long term economy. Right now the inflation figures that are being publicly touted seem to be a little too conservative. Some commentators believe that we crossed double digit inflation levels months ago and that governments have been less than forthcoming with real figures to prevent mass-hysteria.
A lot of actively-traded gold stocks fell 4.7% in 2021, they were dragged down further by investor expectations for the government’s response to the price increase. Investors love gold for the stability it gives in times of great economic crises. It is a good store of value that protects against inflation and uncontrollable swings in stock and consumer prices. However, it does not generate an income but it struggles when rates increase.
Gold climbed to its highest in August 2020 and reached $2,060 an ounce, however as the world started rising from the pandemic, the price of gold began to slide. Since then, gold has dropped by 12%. In November the gold price began climbing back up when it became clear that inflation would persist. However, the expectations that the Central bank policies would slow inflation have kept the price of gold close to $1,800 an ounce.
It should be highlighted that gold failed to have an impressive performance in a year where a lot of commodities and stocks rose. This could be challenging in 2022 especially as banks are expected begin increasing their rates.
Theoretically, 2021 should have been an exceptionally good year for the price of gold. The environment supported the increase in the price of gold, yet gold ended up lower than what a lot of people expected. With 2021 over, one has to wonder what will be the one thing to push the gold price higher.
The inability of gold to rise to the levels it was at in 2020 has pressured mining stocks to decline. Shares held by mining companies tend to be more volatile than the gold price itself.
Gold in the future of decentralised currency
Bitcoin has been touted as the best hedge against inflation even though it is the most volatile investment and it hasn’t been tested during inflationary times. When Bitcoin first came onto the scene, a lot of people did not think it would have as much impact as it has. However, Cryptocurrency has proven to be more than just a flash in the pan but a real game changer. We can now safely say we are living in a world where Cryptocurrency is just as important as precious metal investment and even seen to be more safer and lucrative that stocks and bonds. In the past, investment fund managers advised clients to mix stocks and precious metals in their investment portfolios but these days some advocate that people should allocate at least 2% to cryptocurrency.
What can investors expect from gold in 2022? If the price of the U.S dollar strengthens the price of gold could fall even further. It will become more expensive for buyers outside the United States of America. The price of gold could get muted in 2022 unless certain events happen. Some governments have been accused of not being open and truthful about the real state of the economy or the inflation rates. Somehow at the rate that governments have been printing new money and the fact that the economy has not returned to its ultimate highest levels, it seems strange that gold is not as bullish as it should be.
This article was brought to you by the Melbourne Gold Company.