When you looked at the gold headlines as the new year ended last week, you would think that the bullion is experiencing double-digit drops in 2021. But after gaining another 18% star in 2019 and then another 24% in 2020, the gold price consolidated these massive gains by up to 20% into the second quarter of 2021, down just 3.5% from last year. closed. David Erfle, a mining industry investor and market analyst, begins with this statement and lists 10 reasons to invest in the yellow metal. With the analyst’s narration, we Cryptocoin. com with its readers.
First, a brief look at the developments affecting gold
The gold price entered the new year, continuing to whip up investors on both sides of the trade. The first week of 2022 started volatile trading on both sides of the key $1,800 level, until December’s Federal Reserve minutes released Wednesday thwarted the bulls. Gold sold out with the stock market soon after the minutes revealed that policymakers had agreed to hasten the end of their pandemic-era bond-buying program and released forecasts that projected a three-quarter percentage point gain through 2022.
Meanwhile, precious metal mining saw continued broad-based selling in the first week of 2022, pointing to renewed relative weakness in the gold price. Despite the fact that the gold price has remained in an uptrend since August 2021, sales rose in the new year. Also, while we have seen the expected inflationary result from the trillions of US dollars created by the world’s largest central bank, the failure of the gold price to respond as expected has kept general investors out of the gold complex for the past seventeen months.
On Thursday, St. Louis Fed President James Bullard said the Fed could raise interest rates in March and is “in a good position” to take more aggressive action against inflation if needed, following a policy reset last month. Therefore, it is reasonable to assume that the Fed’s next FOMC meeting, January 25-26, will show much better the beginning of the upcoming cycle of rate hikes.
10 reasons to buy gold according to analyst
Despite the continued underperformance of gold as we enter the new year, the 2022 fundamental ground for precious metals and related mining share prices continues to strengthen. Below are 10 reasons why I expect the price of gold to rise above $2,000 in 2022, with the mining industry making a significant bottom in Q1 2022:
- Inflation has become more problematic and more persistent than previous optimistic assessments by Fed Chairman Jerome Powell and other Fed officials.
- Real interest rates are expected to remain deeply negative. Higher inflation combined with continued low interest rates will result in negative real interest rates, which is always a strong buying signal for gold investors. In periods of negative real interest rates, the annual average return of gold has been a star of 21%.
- The more aggressive contraction of the Federal Reserve and the prospect of three rate hikes in 2022 are already heavily priced in. Fed futures on Thursday signaled a high 81% chance for a rate hike cycle that began in March. This means that any new fear can change the look and benefit the gold.
- Rising geopolitical tensions: the threat of war between North and South Korea that could involve the United States; Tensions between the USA, China and their neighbors over Taiwan; Tensions between NATO, EU and USA over Ukraine with Russia etc.
- The global economy is starting to bounce. The spreading economic weakness will make it difficult for central banks to implement any tightening moves without wider repercussions. The Fed is severely limited in how much it can raise rates due to ballooning interest payments on its nearly $30 trillion national debt.
- During the last tightening cycle between 2015 and 2019, the Fed increased interest rates nine times and gold prices rose nearly 35%. Between 2004 and 2005, the Fed increased interest rates 17 times, and gold prices rose 70%. Also in the 1970s, rates rose from 4.75% in 1976 to 20% in 1980. During the same period, gold rose from $185 to $850.
- Physical gold purchases based in India and China increased dramatically. Indian demand alone was over 500 tonnes in 2021 compared to 2020, which is more than enough to meet the current mineral supply.
- Net bullion buying by central banks is likely to continue and possibly increase. Recently, the central banks of both Singapore and Ireland bought gold for the first time in more than a decade amid inflationary concerns.
- Position taken by commodity traders is on the downside and is often followed by short-term rallies. The fact that paper gold is sold on the Fed’s tightening thesis is mostly priced in the market.
- Gold mining stocks are trading in deep value while generating record cash flows. Meanwhile, GDXJ is trading at the last seen levels, with gold trading at $1,500.