What will happen to the course of gold in 2022?

Many investors in the gold market will gladly say goodbye to 2021, since during this period the precious metal has fallen in price.

The gold market has been hit by sluggish demand despite low levels of real interest rates. Investors "interest in risky assets did not diminish even as inflation and the pandemic accelerated. Gold prices have not risen this year either. Market participants probably put in the price of precious metal the risks of further growth in inflation and tightening of the Fed's monetary policy back in early 2021.

Investors currently expect a phased increase in Fed interest rates in 2022. According to market participants, the first increase will take place in June. Some analysts believe the gold market could improve in 2022 as U.S. monetary policy proves less aggressive.

Experts are confident in the growth of the gold exchange rate

Christina Hooper, an expert in the investment department at Invesco (USA), believes that as soon as the Fed begins to raise interest rates, all attention will be focused on the reaction of markets to this event. Only then will it be possible to give an affirmative forecast regarding the situation in the gold market. Next year, yields on 10-year U.S. Treasuries are highly likely to rise. However, a sharp increase in this indicator is not expected. The terminal capitalization rate (a measure of estimated value at the end of the asset ownership period) will remain fairly low. Hooper expects the gold market should not expect major changes next year, and prices will continue to hover around $1,800 an ounce. Precious metal will remain an attractive risk hedge to protect savings from currency depreciation as a result of rising inflation rates, she said. The yellow metal will also be relevant to investors due to geopolitical uncertainty. However, she added that U.S. economic growth would support the attractiveness of risk assets even if the economic situation worsens next year.

Ole Hansen, head of commodity asset strategy at Saxo Bank (Denmark), predicts an increase in gold quotes in 2022. Hansen noted that the yellow metal ends the outgoing year with dignity - the rate is currently near the $1,800-an-ounce support level. The current momentum is essentially a consolidation compared to price growth of nearly 25% last year. Gold quotes in 2021 decreased by only 6% compared to 2020. Despite the fact that many doubt the new major rallies in this market, the expert predicts such a result in the medium term. The growth of gold prices is possible due to an increase in inflation. While the Fed's interest rate hikes will push bond yields higher, the real level of interest rates will remain negative. Most economists expect that no matter how many times the financial regulator raises interest rates next year, the inflation curve will remain ahead. If the Fed tries to speed up the process of raising rates, then it will cause another recession. According to the expert, in the near future there may be a sharp inversion of the yield curve, which means that short-term "treasuries" will become more profitable than long-term ones. This means that real returns will remain low, which will be a favorable factor for the growth of the gold exchange rate.

The growth of the gold exchange rate will be affected not only by inflation

Interest rates and real bond yields will be critical factors that will affect the yellow metal's appreciation next year. However, these are not all factors that analysts pay attention to.

John Laforge, head of physical asset markets strategy at Wells Fargo (USA), noted that commodities will enter a long-term upward trend. Most raw material prices rose in 2021 due to a significant imbalance in supply and demand. This situation is caused by insufficient investment in production, which led to a shortage of supply with ever-increasing demand. Therefore, in 2022, a significant increase in commodity prices is expected, which will be associated with a lack of supply growth. This trend is not going away even with rising interest rates. Laforge is optimistic about the prospects for gold, since precious metal is also a commodity. The expert predicts the price of gold will rise in 2022 to the level of $2,000 per ounce. The yellow metal is likely to be hit by tightening U.S. monetary policy, though the changes are unlikely to prove too strong.

However, not all experts offer optimistic predictions about gold. Commodity analysts at consultancy Capital Economics (UK) expect gold prices to fall to $1,600 by the end of next year. This will be affected by the gradual increase in yields on short-term US Treasuries.