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The year 2021 was downbeat for precious metals. Gold closed out 2021 with a loss of 3.6%, marking its biggest annual decline since 2015. Although precious metals are known as inflation-heading assets, gold failed to meet investors’ expectations last year despite a sky-high inflation rate. Reopening trade, fast economic growth, solid pent-up demand, a strong stock market, the rising greenback and chances of a hawkish Federal Reserve weighed on gold prices.
Although the year 2022 has been extremely downbeat for stocks, gold has not posted a blockbuster performance either. The biggest gold bullion ETF SPDR Gold Shares (GLD - Free Report) is off 4.7% this year compared with a 16% decline in the S&P 500. Still, the yellow metal has gone a long way in protecting investors’ assets.
Investors will now be curious to know what lies in store for gold ETF investing for the rest of 2022. Let’s delve a little deeper.
Will Fed Slow Rate Hikes?
The Federal Reserve raised interest rates by 75 bps this week and hinted that it could slow the pace of its hiking campaign at some point, per a CNBC article. The decision to move by 0.75% was in line with the magnitude of the Fed’s previous action in June, which marked its largest single-meeting rate increase since 1994.
The July move marked four consecutive rate hikes in the U.S. this year. Short-term borrowing rates are now between 2.25% and 2.50%, comparable to levels in 2019. Market participants probably started believing that the Fed won’t hike steeply going forward to arrest potential economic slowdown. This would be a plus for gold investing.
Geopolitical Crisis; Supply Chain Issues: Global Growth Slowdown
The Russia-Ukraine war and occasional Covid lockdowns in China are causing severe supply-chain issues. This along with global interest rate hikes may result in a severe growth slowdown globally. These slowdown worries might bolster gold’s safe-haven demand.
The International Monetary Fund (IMF) has forecast global growth of 3.2% for this year and 2.9% for the next. The forecast fell by 0.4 percentage points and 0.7 percentage points from the April report. Sky-high global inflation, a worse-than-expected slowdown in China and the adverse effect of the Russia-Ukraine war are weighing on the global growth outlook.
Mutations of COVID-19 Virus; Monkeypox Threat
New coronavirus strains had a considerable negative impact on Wall Street in the previous waves. While Omicron was handled, further mutations of the virus may occasionally throw the global market in a wavering zone. The World Health Organization has also declared the latest monkeypox outbreak as an international public health emergency. The central banks will not likely be of much support anymore and any massive fiscal support is also unlikely. All these factors can brighten up the safe-haven side of gold.
Gold: A Hedge Against Inflation
Gold is often viewed as a hedge against inflation. We do not expect inflation to return to the Fed's 2% inflation target in the medium to long term. In fact, inflation is sky-high globally and is expected to stay elevated in the coming days. Hence, gold would probably benefit from this as an inflation hedge.
Upbeat Price Projections
U.S. investment bank Goldman Sachs recently boosted its year-end 2022 gold price forecasts. The gold price target is now $2500/oz, up from the current level of $1,767.80 (at the time of writing), as quoted on kitco.com. The likelihood of a U.S. recession could boost the demand for gold in 2023.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold ETFs like SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL - Free Report) and SPDR Gold MiniShares Trust (GLDM - Free Report) and GraniteShares Gold Shares (BAR - Free Report) .
Bottom Line
Having said this, we would like to note that the current scenario is not in favor of gold investing fully as the greenback is still in solid shape. Gold investors should closely watch the economic and market events before taking any decision.
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5 Reasons Why Gold ETFs Could Shine Despite Fed Rate Hikes
The year 2021 was downbeat for precious metals. Gold closed out 2021 with a loss of 3.6%, marking its biggest annual decline since 2015. Although precious metals are known as inflation-heading assets, gold failed to meet investors’ expectations last year despite a sky-high inflation rate. Reopening trade, fast economic growth, solid pent-up demand, a strong stock market, the rising greenback and chances of a hawkish Federal Reserve weighed on gold prices.
Although the year 2022 has been extremely downbeat for stocks, gold has not posted a blockbuster performance either. The biggest gold bullion ETF SPDR Gold Shares (GLD - Free Report) is off 4.7% this year compared with a 16% decline in the S&P 500. Still, the yellow metal has gone a long way in protecting investors’ assets.
Investors will now be curious to know what lies in store for gold ETF investing for the rest of 2022. Let’s delve a little deeper.
Will Fed Slow Rate Hikes?
The Federal Reserve raised interest rates by 75 bps this week and hinted that it could slow the pace of its hiking campaign at some point, per a CNBC article. The decision to move by 0.75% was in line with the magnitude of the Fed’s previous action in June, which marked its largest single-meeting rate increase since 1994.
The July move marked four consecutive rate hikes in the U.S. this year. Short-term borrowing rates are now between 2.25% and 2.50%, comparable to levels in 2019. Market participants probably started believing that the Fed won’t hike steeply going forward to arrest potential economic slowdown. This would be a plus for gold investing.
Geopolitical Crisis; Supply Chain Issues: Global Growth Slowdown
The Russia-Ukraine war and occasional Covid lockdowns in China are causing severe supply-chain issues. This along with global interest rate hikes may result in a severe growth slowdown globally. These slowdown worries might bolster gold’s safe-haven demand.
The International Monetary Fund (IMF) has forecast global growth of 3.2% for this year and 2.9% for the next. The forecast fell by 0.4 percentage points and 0.7 percentage points from the April report. Sky-high global inflation, a worse-than-expected slowdown in China and the adverse effect of the Russia-Ukraine war are weighing on the global growth outlook.
Mutations of COVID-19 Virus; Monkeypox Threat
New coronavirus strains had a considerable negative impact on Wall Street in the previous waves. While Omicron was handled, further mutations of the virus may occasionally throw the global market in a wavering zone. The World Health Organization has also declared the latest monkeypox outbreak as an international public health emergency. The central banks will not likely be of much support anymore and any massive fiscal support is also unlikely. All these factors can brighten up the safe-haven side of gold.
Gold: A Hedge Against Inflation
Gold is often viewed as a hedge against inflation. We do not expect inflation to return to the Fed's 2% inflation target in the medium to long term. In fact, inflation is sky-high globally and is expected to stay elevated in the coming days. Hence, gold would probably benefit from this as an inflation hedge.
Upbeat Price Projections
U.S. investment bank Goldman Sachs recently boosted its year-end 2022 gold price forecasts. The gold price target is now $2500/oz, up from the current level of $1,767.80 (at the time of writing), as quoted on kitco.com. The likelihood of a U.S. recession could boost the demand for gold in 2023.
ETFs in Focus
Against this backdrop, investors can keep track of regular gold ETFs like SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL - Free Report) and SPDR Gold MiniShares Trust (GLDM - Free Report) and GraniteShares Gold Shares (BAR - Free Report) .
Bottom Line
Having said this, we would like to note that the current scenario is not in favor of gold investing fully as the greenback is still in solid shape. Gold investors should closely watch the economic and market events before taking any decision.