While many investors predicted 2022 would be a good year for gold, the asset is on track to decline for its sixth straight month, dropping 14% in that span of time, reports an article in The Wall Street Journal.
Gold is supposed to be a safe haven during times of volatility, and it did jump to near-record highs early in the year after the Russian invasion of Ukraine sent markets spiraling. But since that peak, as the Ukraine war continues and inflation remains persistent, it has declined 8.2%, making 2022 its worst yearly performance since 2015. Gold’s disappointing performance could be another fallout from the Fed’s aggressive tightening, as it stretches into every corner of the markets, the article contends. And as the Fed remains hawkish, investors are turning to safer, more mundane assets such as Treasury bonds, which tend to go up and down in conjunction with investors’ forecasts for the Fed’s rate moves, and also offer more stable payouts. Along with bonds, investors are putting more money into the U.S. dollar, driving it to a 20-year high, in turn making gold more expensive for foreign buyers.
Many analysts predict that gold will keep falling, at least as long as the Fed continues to hike interest rates. The world’s largest ETF backed by physical gold has dropped more than 2% in September, and investors continue to yank their money from mutual funds and ETFs with a focus on precious metals. Gold is “not as attractive as it was in 2020,” Ruth Crowell of the London Bullion Market Association told The Journal, when pandemic panic drove investor uncertainty. However, gold is still a safer option than stocks, with the S&P 500 down 18% so far in 2022, Crowell stressed.
Perhaps if the Fed slows down on its rate increases in 2023, gold prices might get a boost as yields and the dollar fall back down; indeed, analysts from JPMorgan predict that gold will climb up to $1,820 per troy ounce by the end of next year.