The question some investors have been asking is: “Why gold hasn’t performed better in 2022 despite the high inflation and market turmoil”.
High inflation around the world was a big indicator that gold is supposed to be a haven when the stock market is volatile. But what happened is that gold is down by 8% this year. Moreover, the price fell by 14% in the last 6 months. It is on its longest losing streak since 2018 when it fell by 9.9% in 6 months.
According to Gold Hub, many investors think that gold should have performed better considering the high inflation in many countries around the world.
Gold is driven by economic expansion, risks, uncertainty, opportunity cost and momentum.
This year gold has been supported by geopolitical insecurities led by the war in Ukraine, also by high inflation and bigger risks on the stock market.
However, the main reasons why it didn’t perform better are Fed’s rising rates and a strong USD.
Many investors believe that the Fed will do anything to bring inflation down and avoid the crisis.
Not all investors agree with this, but it had its influence on gold’s performance.
Gold had to continue with much higher opportunity costs from continuously increasing interest rates and the strongest dollar in the last 20 years. In fact, if the gold price had only depended on those factors, it would have performed even 30% lower than it is currently.
Treasury yields tend to move together with the investor’s expectations for the Fed’s bench market rates, and investors can get a much higher return on the investment in government bonds. Recently treasury yield hit its highest level since 2007.
On the bad performance of gold also influenced its weak positioning in the markets of the future and weak Chinese demand for gold earlier this year.
But is everything looking that bad for gold?
Actually, when we look at the global market situation in 2022, gold has outperformed many other assets. Gold has outperformed many inflation-linked bonds in the US and around the globe.
Gold’s bad performance might decrease while gold market supportive factors remain on the market in the long term.
Many investors believe that the Fed might slow its pace of rate increases next year, which could bring down the dollar yields, and boost the gold price.
JP Morgan’s analysts believe that the gold price might rise by about 1820 USD a troy ounce by next year.
Another positive indicator for the gold market is that this week finished with more than a 5% gain as prices hold solid support above 1750 USD an ounce. In the futures market, it is seeing its best weekly gains since April 2020.
It has definitely been quite an interesting year for the gold market and we can only look into the future with high anticipation.