Gold Market’s Surplus Continues In 2022

Strong economic recovery, rising nominal yields and potential rate hikes are factors that together hurt investors’ appetite for gold, which has affected other precious metals as well, according to the latest report by London-based Metals Focus Consultancy.

Metals Focus said that the threat of new virus variants, concerns of stagflation and negative real rates have all supported holding precious metals. In the near-term, growing uncertainties would be the main driver of precious metals investor activity, particularly for gold.

Investment for gold will turn bearish from mid-2022 onwards when a US policy rate high looks increasingly likely. Rising inflation, and the extent to how long it lasts for, will remain the key factor affecting investor sentiment towards gold, the authors of the report found.

Real rates/yields are expected to remain deep in negative territory. Metals Focus noted that in the near term, rising COVID infections, plus the emergence of the Omicron strain, also pose new tail risks to the global economy.

According to the report, all these factors should continue to make for a supportive environment for gold over the next few months, particularly when combined with exceptionally high equity valuations.

The consultancy cautions that this price recovery will be difficult to sustain beyond the early part of next year. “By mid-2022, it will become increasingly clear that a new interest rate hiking cycle is approaching. With nominal and real yields firmer, holding zero-yielding assets such as gold will become increasingly unappealing to investors”, the report added.