Geopolitical risks create some support for gold in the short term. However, the precious metal still faces a tough year as the Federal Reserve seeks to aggressively tighten monetary policy to bring inflation back under control, according to a market analyst.
“None of the developments are actually really good for gold”
Rob Haworth, senior investment strategist at US Bank Wealth Management (USBWM), says in a recent interview that the gold market cannot ignore the underlying environment in the long run as escalating geopolitical tensions between the US and Russia continue to heat up:
Gold prices may rise in the near term, but geopolitical uncertainty is not a sustainable long-term driver. Because it eventually dissolves in one way or another. At some point, the foundations will reassert themselves.
cryptocoin.com As we reported, gold prices fell 3% last week after the Federal Reserve said it expects to raise interest rates soon. The US central bank is laying the groundwork to begin shrinking its balance sheet after raising interest rates. At the same time, Federal Reserve Chairman Jerome Powell said the labor market is strong enough to withstand higher interest rates.
Markets are now pricing in the potential for five rate hikes this year. However, Rob Haworth notes that while current expectations are a little too hawkish, there is no argument that the Federal Reserve will tighten monetary policy:
We may see three or four rate hikes this year, and maybe even a quantitative tightening (QT). The problem here is that none of these events are actually really good for gold prices.
How can investors protect themselves this year?
Gold isn’t the only asset to struggle with in 2022 as investors continue to navigate turbulent financial markets and economic conditions. Rob Haworth states that there is a wide range of prospects for 2022 and that the ongoing Covid-19 outbreak will continue to dominate economic activity.
Adding that inflation will continue to be an issue as there is so much uncertainty surrounding global supply chains, Rob Haworth says he has been relatively neutral on economic growth this year. As for how investors can protect themselves this year, the strategist says he’s looking at value companies with healthy cash flows and strong purchasing power to hedge against inflation:
We try to keep our portfolio in a position where we have asset classes that provide some protection and insurance to clients, which can help us in an inflationary environment.
While the strategist states that he monitors the energy materials and industrial sectors, he says that it is necessary to look at the parts of the market that have been avoided in the last few years, the cyclical reopening sectors. On how this will affect gold, Rob Haworth states that it may still have a role to play in some portfolios:
It’s not something we put in portfolios today, but it’s something worth considering. The question is, are you more concerned about the economic malaise, in which case you need a store of value, or are you looking at the economic recovery? I would still look at the glass half full. We still think we are in the midst of a recovery, but we also recognize that recession risks are not impossible.
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