Gold prices are expected to go up in the near future as it could benefit from the elevated risk environment, rising inflation, slower growth and low interest rates. “Correction from short term hurdles could be used as a buying opportunity although over the course of next 12-15 months an extended rally could be seen over $2,000 (per ounce) with a potential to make new life time highs,” says Navneet Damani, VP - Commodity & Currency Research, Motilal Oswal Financial Services. One ounce is equal to 28.34 grams.
Gold finished the year 2021 approximately 4 per cent lower, closing at $1,806/oz, as prices rallied towards the year-end on the back of the rapidly spreading Omicron variant. Currently gold is trading at Rs 48,535 (per 10 gms) in India. In USD the current gold prices are at $1840/oz.
The Motilal Oswal report states that inflation has been one of the main highlights for 2021 and it could continue to be in the limelight next year too. The rising inflationary expectations were increasing the distress in the market for a long time, although the panic in the market started once US Governor Powell also acknowledged the same and started to act on it. “There are expectations that even with major central banks measures to calm these expectations, rise in crude oil prices and continuing panic amidst the supply chain issues will continue to support the inflationary expectations. And hence, gold prices have been holding firm even after the Fed's tapering announcement and three rate hike expectations. Market participants did surely discount the next year's rate hike expectations although prices did recover from that fall,”says Damani.
A report from the World Gold Council also states that while rate hikes can create headwinds for gold, history shows their effect may be limited. At the same time, elevated inflation and market pullbacks will likely sustain demand for gold as a hedge and jewellery and central bank gold demand may provide additional longer-term support.
Juan Carlos Artigas, Global Head of Research, World Gold Council said; “The 2022 outlook for gold comes down to which dynamics will tip the scales. While factors like persistent inflation and jewellery demand are likely to be supportive, rising rates may create headwinds. Ultimately, even if gold’s price may fluctuate, its value as a highly liquid hedge remains consistent. This is an important attribute amidst ongoing Covid-related market volatility and an intensifying investor risk appetite.”
2020 was a Black Swan year, where we saw a return of 25 per cent in gold. “At the rise of the pandemic, we were preparing ourselves against the spread of the unknown, hence aggressive measures like shutting down economies, loose monetary policies and other steps were taken to combat the impact of virus. Although, now we have information regarding the virus, its variants, necessary infrastructure and vaccinations to fight against the same. Even though we are seeing a surge in cases, there may not be a complete lockdown like we witnessed in 2020 but some restrictions to curb the impact could be seen. Apart from the pandemic story continuing from 2020, rising inflationary expectations - amidst rise in crude prices and supply chain disruptions, geo-political tensions, and few others as mentioned further below will continue to support gold’s rally,” says Damani.
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