When you looked at the series of gold headlines as the new year ended last week, you would think that the bullion is experiencing double-digit declines 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. We share it with the readers ofKriptokoin.com with the analyst’s narration .
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. Sales soared in the new year, although the price of gold has remained on an uptrend since August 2021. 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.
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 at the Fed’s next FOMC meeting, January 25-26, you will be able to much better illustrate the start of the upcoming cycle of rate hikes.
10 reasons to buy gold, analyst
is doing. 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:
- It has become more problematic and more persistent than optimistic assessments.
- 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%.
- More aggressive contraction of the Federal Reserve and the prospect of three rate hikes in 2022 have already largely failed. 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.
- Increasing 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.
- Global leaps forward. Spreading weakness will make it difficult for central banks to implement any tightening moves without wider repercussions. The Fed is severely tight-lipped on how much it can raise interest 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 purchases by central banks are 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 selling of paper gold through the Fed’s tightening thesis is mostly thought to be a price in the market.
- Gold mining stocks are trading at deep value while generating record cash flows. Meanwhile, GDXJ is trading at the last seen levels where gold was trading at $1,500.