The number one question doing the rounds in the commodity market is: What will transpire in the bullion market in 2022 given the bearish trend in 2021? Having just emerged out of strong bullish momentum in 2020, prices had opened at $1899.44 per ounce in 2021. However, due to the opening of economies around the globe and the mass drive towards vaccines, prices slumped and ended the year at $1829.26 per ounce, a fall of 3.69% for the year. The preceding year was coined as a volatile year for precious metals and difficult to forecast. But with the advent of 2022 and yet another challenging prospect ahead, here are the major drivers that could influence gold.
The first attribute affecting gold has been the monetary policies of major economies, especially the US. The central bank of the USA, the Federal Reserve, along with its impact on the US dollar is a decisive factor for the price of gold in 2022. The response to the pandemic has yielded unprecedented levels of printing money and fixing interest rates near to zero. While the central banks have firmly stated that they believe inflation to be a transitory answer to the previous years, deflationary pressure, the ongoing rise in the prices casts a major doubt. Given the economies are still fighting the pandemic in various magnitudes, the supply channels are still exemplifying a minimum sense of recovery.
The diverse stance in the monetary policies around the globe will be expected to have large implications for gold price and many forecasts will be based on this very issue. With economic recovery continuing at a decent pace and inflation rates rising, the policies could turn hawkish giving ample reasons for gold to turn bearish. If the QE could start to taper into 2022 along with rise in interest rates, the value of the yellow metal could diminish under pressure in 2022. However, the current accommodative monetary policy and high inflation rates will continue to provide support to gold prices.
Regardless of a relatively successful vaccination programme in the UK, US and Europe, there is still a significant issue in the vaccination drives in less developed nations. Monetary policy could be influenced by the Covid situation in the nations in question.
With a large dependence on vaccines from developed nations, the rise in the Delta and Omicron variants still holds potential risks in 2022. The past two years have provided numerous examples corroborating the fact that Covid can still surprise us in no uncertain terms. How the global economy resists the pressures of the pandemic during the winter and into 2022 will inevitably have an impact on global economic recovery and influence decisions enveloping monetary policies.
Analysts opine that the key and most uncertain element could be developing geopolitical issues that wreaked havoc in the bullion markets in 2018 and 2019. Trade wars and sanctions between major economies could stifle economic growth and escalate the demand for bullion in a short span of time. Relations between the US and nations like China and Russia are still poor, and argumentative remarks could trigger massive long positions in gold.
The Middle East is another closely watched region in the world. The Taliban’s coup in Afghanistan will raise the fear of increased terrorism in the region and bullion markets could have a reprieve if any untoward incidents occur in the region.
Central bank demand
Central banks around the globe tend to store gold in their vaults to protect their national wealth. But as the pandemic took centre stage, buying had somewhat paused. However, late into 2021 and into 2022, numerous central banks have once again started to buy more gold reserves. India, Brazil, Turkey among others have all added gold to their reserves and if this trend continues, the demand for gold will accelerate and will maintain support for the value of gold into 2022.
Analysts and market pundits have varied opinions on their predictions for gold in 2022. However, everyone agrees that gold will maintain a level across the current prices based on the performance so far this year. The continuation of economic recovery will offset any potential gains from the other hawkish factors. The forecast for 2022 is likely to fluctuate significantly reflecting the extraordinary repercussions caused by the pandemic in the last two years. Traders will need to tread carefully with any price predictions since prices could rise or fall as events unfold. Overall, the price forecast may not represent the troughs and the peaks that gold could observe in 2022 and if anything, be ready to be surprised with the developments.