Gold prices likely to remain firm despite Fed’s tightening in 2022

By Ruchit Purohit

Gold costs are anticipated to stay agency in 2022, regardless of the US Federal Reserve asserting a roadmap to tighten its unfastened financial coverage and signalling three charge hikes throughout the yr. Physical demand for gold and the central banks stocking up the yellow steel will even lengthen help to the costs in 2022. The MCX Gold contracts have continued to carry floor even after the Fed’s announcement, and it's prone to surpass Rs 55,000 on supportive elements over the following 12 months, stated analysts.

Experts are of the view that the softening of gold costs will likely be restricted in 2022 because the US Federal Reserve has ‘already announced’ the speed hikes. As is seen previously, usually, the costs stay beneath some stress within the months main as much as a Fed tightening cycle and later considerably outperform within the months following the primary charge hike, stated the World Gold Council. Further, elevated inflation coupled with market pullbacks is prone to maintain the demand for gold as a hedge throughout the interval. According to the World Gold Council, gold has traditionally carried out properly amid excessive inflation. In years when inflation was increased than 3%, gold costs elevated 14% on a mean.

Speaking to FE, Somasundaram PR, regional CEO, India, World Gold Council, stated: “There is strong expectation of rate hikes, which have been factored in but there is high inflation, too, accompanying the rate hikes. So the question remains if real rates will continue to stay lower, which will favour gold. Furthermore, geopolitical factors are another aspect that one should keep an eye on in the ongoing year. Overall, there are a multiple set of factors beyond just rate hikes that will have an impact on gold in 2022.”

Previously in 2021, steel costs have corrected round 4% after a pointy rally within the previous yr, primarily because of the shift of asset allocation to riskier property amid double-digit returns, and liquidation of gold ETFs. In 2020, the gold costs scaled report highs on pandemic push and ample liquidity in markets. As a consequence, traders secured returns of over 27% throughout the interval, knowledge from Bloomberg exhibits. MCX Gold made a report excessive of Rs 55,922, and the Gold Spot scaled above $2000 in August 2020.

Going ahead, alongside rate of interest hikes, volatility within the US greenback, bond yields, and profitable vaccination drives can harm the steel costs in 2022. Navneet Damani, VP – commodity & forex analysis, Motilal Oswal Financial Services, stated, “Volatility in US dollar and yields is also an important factor which could cap some gains for metal prices. Optimism regarding global growth and successful vaccination drives could also weigh on bullions. ETF and CFTC have not been supportive in the past year and if the same trend continues, it could further affect the market sentiment.”

He stated domestically, gold, on a quarterly foundation, might see targets of Rs 50,750 adopted by Rs 52,500, with helps at Rs 47,850 and Rs 46,400. Keeping the above variables in thoughts, shopping for on dips technique will be continued and an prolonged rally will be seen round Rs 55,000 over the following 12 months, he added.

Post the pandemic, consultants preserve, gold stays an necessary asset class amongst traders and central banks. Not anticipating the gold to outperform numerous different asset lessons, they imagine, co-existence will stay a major risk. “Central banks, particularly RBI, has continued to show interest in buying gold post the pandemic period amid bloated balance sheets and their belief in asset allocation. Additionally, CBDTs can compliment gold at some point,” Vikram Dhawan, head – commodities and fund supervisor, Nippon India Mutual Fund, instructed FE.