2022 – A Challenging Year For Gold?

Gold prices rose ahead of Fed minutes last Wednesday but slipped quickly after the Fed signalled an earlier interest rate hike.

As US Treasury yields rose nearly three basis points on the news, gold prices were spiralling quickly downwards. Gold futures slipped 1.25% at $1,802.91 per ounce. Receive latest price updates

Hawkish Fed Minutes

The minutes of the December FOMC meeting released last week confirm that the Fed will raise interest rate sooner than expected. Previously, the market speculated that the first interest rate hike would begin in June or July. Now, it could come as early as March. Stay alert and watch the news closely

“Given their (the participants’) individual outlooks for the economy, the labour market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the Fed wrote in the minutes.

The central bank expected three rate hikes in 2022, another three in 2023 and two increases in 2024.

While the general consensus is that interest rate hikes are bearish for gold due to the increased competition from other higher-yielding investments, previous data suggests that there is no absolute correlation between the two.

Supply and demand, on the other hand, have a bigger impact on gold in the long run.

The Menacing Omicron And The Unstoppable Inflation

The world has been in the grip of the Omicron variant in recent months, which had pushed investors turn to gold for its safe-haven appeal. Additionally, surging inflation lifted gold prices. In November, gold prices climbed to a five-month high.

While the pandemic remains rampant till this day, the Fed did not cite the Omicron variant as a risk in the recent minutes, suggesting that the officials did not see it as a major roadblock for the US economic recovery.

Mixed Views On Gold Futures

Analysts at JP Morgan are bearish on gold according to its recently published 2022 outlook report. They predict that the yellow metal will fall to pre-pandemic levels by the end of this year due to the Fed’s policy tightening move.

Meanwhile, analysts at Goldman Sachs cite the asset as significantly undervalued, as they assume that the inflation rate will prevail. They predict the gold prices to go up by around 38% in 2022.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.