The year 2021 was weak for the gold and other precious metals market. The end of the year is usually good for gold and silver however this time most precious metals are likely to decline. When looking at a wide range of commodity markets, it is precious metals that perform the worst, while industrial metals have seen strong gains. Therefore, it may be surprising that silver prices drop by a dozen or so percent.
It should not be forgotten, however, that in 2021 precious metals responded primarily to monetary policy changes from major central banks. Many banks decided to reduce unconventional activities and some of them raised interest rates. It is in 2022 that the QE asset purchase program in the United States will expire, followed by a series of interest rate hikes. Theoretically, the first rate hike in the US may take place in March, although the market consensus indicates that it will rather take place around mid-year.
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Open account Try demo Download mobile app Download mobile appThere is no denying that higher interest rates are negative for gold. This is because investing in gold pays no interest, while investing in bonds does. This, in turn, leads to a shift from gold to debt instruments. However, not everything is as simple as it seems. Analyzing the last 7 cycles of interest rate increases in the United States, it turns out that the moment of the first interest rate hike was usually a turning point for gold and other precious metals. Returns in the first 150 sessions after the hike amounted to about 10%, while in the case of the last cycle that started at the end of 2015, the return reached15%! This means that the first rate hike realizes the risk for investors, who later start buying gold in anticipation of a possible slowdown in the economy.
It is possible that gold will be under pressure for one or two quarters, but the rest of the year may belong to gold. Of course, a lot will depend on how yields and the US dollar fluctuate, but it seems that gold is still very cheap today, especially when we consider inflation, oil prices and the US stock market.
On the basis of the spot price calculated in dollars, we can see that since the beginning of this year, gold fell 4.6%, silver is losing almost 13%! Platinum is down 10% while palladium dropped nearly 20%.
Gold is gaining during today's session, extending recent gains. It is possible that the price will break above the last local high, however from a broader persepctive one can see that downward trend prevails. and level of $1700 should act as solid support. Source: xStation5
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