According to market analyst Chirag Mehta, central bank gold purchases can be expected to continue into 2022 as they hedge against macroeconomic uncertainties. As the world learns to live with Covid-19, gold prices in 2022 will be affected by the shaping of inflation and the response of central banks to it. The analyst notes that continued higher inflation could increase demand for the yellow metal, but at the same time bring the possibility of a more hawkish Fed to hurt prices.
US consumer inflation
cryptocoin.com As you follow in the news, as we enter 2022, US consumer inflation has reached its highest level in almost 40 years and the Federal Reserve has finally removed the word ‘temporary’ from the inflation outlook as it is far behind the curve. This laid the groundwork for a hawkish pivot by the US central bank. The Fed announced it’s doubling its tapering rate at $30 billion a month, increasing the chances of raising interest rates a few months ahead of schedule. This situation creates a negative effect for the non-returning gold.
Other central banks are not far behind. The Bank of England has raised interest rates for the first time in three and a half years, and the European Central Bank has announced that it is ending its bond-buying program by March. The inflation crisis is likely to remain for a while and may worsen if it takes longer for the supply side to normalize for whatever reason. According to the analyst, a stagflation scenario that would be incredibly bullish for gold prices cannot be ruled out.
Central banks are chasing gold
Central banks continued their purchases of the precious metal and were net buyers in 2021. In fact, the latest data from the IMF shows that it’s not just emerging market central banks that buy gold. Developed countries such as Singapore and Ireland have also started buying gold to diversify their forex reserves. The analyst reminds that Central Bank gold purchases can be expected to continue in 2022, as they protect themselves against macroeconomic uncertainties and gradually diversify away from the dollar. The analyst summarizes his gold expectation as follows:
Gold is expected to stay range-bound in the first few months of the year due to conflicting forces between sticky inflation acting like a tailwind and the damage to the stronger dollar caused by the Fed’s tightening. However, long-term gold investors will have the last laugh, as a rapid tapering could hurt growth and trigger market crises that cause investors to look for portfolio diversifiers like bullion.
The price of the monetary asset should ideally match the rising global money supply and low real interest rates of the pandemic era, as it has historically been. According to the analyst, investors should be patient and use any price correction as an opportunity to build their gold allocations.
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