One investment opportunity that has generated a lot of buzz in recent years is gold. Traditionally, investors have relied on gold to hedge against the volatility of the stock market, and with increasing periods of market volatility caused by the coronavirus pandemic, many investors have thought about getting involved in the gold market. However, gold prices have been stagnant in recent years as the prices of other asset classes, such as cryptocurrencies, have increased significantly.
Investors are wondering whether gold has a place in their portfolios. At the same time, commodities analysts are claiming that gold prices could skyrocket in 2022, which may reignite interest in this investment.
The Significant Potential for Gold Prices in 2022
According to some industry experts, gold could reach $2,100 per ounce in 2022. This would be driven by the weakness of the United States dollar and the high rate of inflation happening around the world.
In August 2020 gold prices closed at a record high of $2,063 per ounce but have since fallen to about $1,800. While this is still higher than we saw five years ago, prices are stagnant compared to increases seen in other alternative forms of investment. Nevertheless, the situation may change, as inflation in the United States is now pushing 6 percent when not long ago it was only 1 percent. Gold is traditionally seen as a hedge against inflation, so people may soon begin to invest and drive up the price.
Moreover, the value of the American dollar will likely decline soon, especially given the inflation rate. While it has not happened yet, it would also drive up the price of gold. Traditionally, the price of gold increases as the value of the American dollar declines. It is important to keep in mind that this relationship has not always played out like this, and there is no guarantee that it will this time. Even so, analysts argue that the price of gold will reach an all-time high in 2022.
The Changing Position of Gold in Global Economies
What drives the price of gold? As mentioned, gold has traditionally been seen as a safe place for money during periods of high inflation, as it provides protection for purchasing power.
Gold has historically held its value over the long term, even when markets and larger economies experience fluctuation. Moving forward, this may not be the case, especially if other investments steal its position to some degree. Some people believe that this is the role cryptocurrency may come to play. While Bitcoin has had a volatile price history, some investors equate it to gold because of its fixed supply and potential for high performance.
Moreover, some theorize that gold’s stagnation may be due in some part to cryptocurrency investment. Bitcoin is an emerging asset with a lot of investor risk, however, so market experts believe that gold is likely to be the asset of choice to hedge against inflation, at least for this coming inflationary period. The unique position of this investment may point to its uncertain performance in future periods of inflation. Investors may want to keep this potential in mind as they brave the current period of inflation and the next one to come.
Further Pressures Affecting the Price of Gold in 2022
Another point to consider in the short term is the potential for increasing interest rates throughout 2022. High interest rates make it more difficult to invest in gold. As interest rates increase, so does the relative cost of investing in gold since it does not pay out dividends or interest. Assets that do will pay out more during periods of high interest rates. If the interest rate increases significantly, investors may exchange their gold for more enticing assets that pay more in such an environment. A large number of investors doing this would put pressure on the price of gold and likely cause it to decrease. This has been less of an issue due to low interest rates, but changing rates could cause a sudden shift.
Savvy investors know that periods of inflation often last longer than expected and generally prepare for this above other market conditions. Plus, the current supply chain issues demonstrate that there is no clear end in sight for inflation globally. Investors may thus retain their gold even if other assets can outperform them. Another protective factor for gold is the growing demand from India and China, which could help keep gold prices high even if other markets around the world are growing less interested.
Julio Herrera Velutini 