Uncertainty over public health and the economy continues to trouble the world, and it appears that this uncertainty won’t vanish in 2022.
This lingering uncertainty could help fuel gains in the gold market next year. Why though? Stubborn inflation or lagging economic growth, among other factors, could tip the scales in favor of gold.
Here, we give you a glimpse into what impacted gold prices in 2021 and the factors that could come into play in 2022. Download our free 2022 Gold Price Forecast to learn more.
2021 Gold Prices in Review
Before we look ahead to next year, let’s take a brief look at what happened in 2021 in three key areas impacting the yellow metal: gold prices, stock prices, and fluctuations of the U.S. dollar.
In early December 2021, the price of gold stood at $1,765/oz., down from a high of more than $1,900/oz. in January 2021. Throughout 2021, the price of gold hadn’t fallen below $1,700/oz. as of early December.
As the U.S. economy continued to recover from the unprecedented events of 2020, gold prices remained strong in 2021 as people continued to view the precious metal as a safe-haven asset.
The stock market has also seen impressive upward movement in 2021 as the economic recovery marches on. In October 2021, the S&P 500 closed at an all-time high, climbing 6.9% during the month. The S&P 500, the Dow Jones Industrial Average, the Nasdaq Composite, and the Russell 2000 all posted double-digit gains in 2021.
However, experts note that the stock market could teeter in 2022 if economic uncertainty remains—a development that could positively impact gold prices.
As for the U.S. dollar, the U.S. Dollar Index was up 6.9% in 2021 (as of early December). The Index measures the value of the U.S. dollar against a basket of currencies from foreign trading partners. It still remains well below its pre-pandemic level, though. And if inflation rises even more, or the economic recovery reverses, the Dollar Index’s rebound could erode.
Gold Price Forecast 2022
No one can predict with precision how gold prices will behave in 2022. We can, however, get a pretty good grasp of the factors that could impact gold prices next year—factors you and other asset holders should keep a close eye on. Here are five of those factors.
1. Interest Rates
Since March 2020, the Federal Reserve has kept the federal funds rate at 0 to 0.25%. This is the rate that banks use to borrow and lend money from one another. The federal funds rate, in turn, dictates interest rates for loans, credit cards, and other lending products that charge interest.
While the Federal Reserve says the benchmark interest rate should remain at 0 to 0.25% until the end of 2023, changes in economic conditions could necessitate a rate hike in 2022.
The World Gold Council says there’s a negative correlation between gold prices and interest rates. Lower interest rates typically boost interest in buying gold because of the metal’s safe-haven appeal, while higher interest rates usually dampen enthusiasm for the yellow metal.
2. Economic Activity
Two figures—GDP (gross domestic product) and the unemployment rate—are key indicators of economic health. Economists monitor the movement of both numbers very closely.
In the third quarter of 2021, U.S. GDP rose by a meager 2.1%, compared with 6.7% in the previous quarter. GDP measures the country’s output of goods and services. By comparison, U.S. GDP fell 3.4% in 2020.
Research firm IHS Markit predicted a 5.5% jump in U.S. GDP for 2021, followed by a more modest 4.3% increase in 2022. However, unforeseen economic events could cause the U.S. to fall short of that forecast and thus could trigger an increase in gold prices.
Meanwhile, the U.S. unemployment rate declined to 4.2% in November 2021. The jobless rate has crawled out of the depths since 2020, but it remains higher than it was before the pandemic. IHS Markit forecasts that the unemployment rate will dip to a low of 3.5% in late 2022 and 2023. The Congressional Research Service has projected that the U.S. unemployment rate will remain above February 2020 levels until at least 2022.
If the employment situation doesn’t bounce back as much as expected, that could prompt a loss of confidence in the U.S. economy and, therefore, a rise in gold prices.
“There’s more risk aversion in the market, and gold is benefiting from that, coupled with concerns about inflation and cooling of the global economy,” says Daniel Briesemann, an analyst at Commerzbank.
3. Jewelry Demand
When demand for gold jewelry goes up or down, gold prices tend to go up and down simultaneously.
In October 2021, the World Gold Council reported that demand for gold jewelry was 33% higher in the third quarter than it was at the same time in 2020. However, the council also said that demand “remains relatively subdued from a longer-term perspective, 12% below the five-year average.”
4. Government Purchases
Central banks around the world regularly add gold to their reserves.
In the third quarter of 2021, central banks bought 69 metric tons of gold, representing a slower pace than in earlier quarters, according to the World Gold Council. Globally, banks’ gold reserves had grown by nearly 400 metric tons through the first three quarters of 2021.
The increase or decrease of gold-buying activity on the part of central banks can impact gold supply and demand, which can cause the price of gold to increase or decrease.
As inflation goes up, asset holders have historically turned to gold as a hedge against inflation.
The U.S. inflation rate soared to 6.2% in October 2021, its highest level of the year. In response to the continuing uptick in inflation, asset holders have been flocking to gold as a hedge against inflation. In mid-November 2021, the inflation surge pushed the price of gold to a nearly five-month high, according to The Wall Street Journal.
“The underlying support for gold and silver remains the inflationary pressures we continue to see in the market,” David Meger, director of metals trading at High Ridge Futures, told the Reuters news service in mid-November 2021.
That underlying support very well could spill over into 2022 if inflationary pressures don’t diminish.
Call U.S. Money Reserve now at 1-888-351-8791 to receive a FREE physical copy of the 2022 Global Gold Forecast or download our latest free report here. It includes helpful information you need to know to prepare your precious metals portfolio for the year ahead.