In 2022, gold may return to its growth. Interest rates are to blame

IBIS InGold Editorial Office

29. 12. 2021

In 2022, gold is likely to rise again. This is the prediction of the BlackRock investment fund. It has approximately $9 trillion in assets under its management, making the fund one of the largest players in the market. According to BlackRock, the main driver of the precious metal's price growth will be low real interest rates together with Americans' demand for assets protecting their investments from the expected decline in stock prices.

 

“Historically, periods when sentiment towards gold and gold funds becomes very negative usually present buying opportunities,” said Evy Hambro, Global Head of Thematic and Sector Investing at BlackRock. He thus refuted the assumption that gold should fall next year. Even though he says it is in relative disfavour, further growth is more likely.

In 2021, money was flowing out of gold exchange-traded funds backed by physical metal. The SPDR Gold Shares, the largest gold ETF fund, has seen net outflows of more than 10 billion USD so far this year, the most since 2013, and this volume is equivalent to about 193 tonnes of gold. According to Hambro, a possible drop in price could mean an increase in interest in investing in these funds.

The assumption of further inflation growth could also be reflected. The Federal Open Market Committee revised its median projection for inflation in 2022 to 2.6% from 2.2%, and the FED also laid out a plan to raise rates in the coming years, starting with three increases in 2022.

“These are real interest rates, which are the most important factor for gold, and those are driven by interest rates and inflation expectations,” Hambro said. He said people should invest in gold for diversification purposes. Equity markets are at historic highs, and with such a tight stock market comes a significant risk of further economic fallout from the pandemic.

According to Rhona O’Connell, Chief Analyst at StoneX, gold shows the trust of investors in the current society, and it is very volatile these days. In her forecast, she also points out that gold could return to a growth path next year because of negative interest rates in many countries. If they were to increase, the desire to invest would ease slightly. The only risk could be a cyclical change we saw in 2013, when ETF funds dumped nearly 900 tonnes of gold. This would derail the market, but the excess liquidity in the system suggests that this is unlikely. Real interest rates will therefore remain in negative territory even if inflation turned out to be transitory.

 

Real interest rates* – November 2021
Argentina
-14,1 %
USA
-6,7 %
Turkey
-5,4 %
Eurozone
-5,4 %
Poland
-5,1 %
Norway
-4,9 %
Canada
-4,5 %
New Zealand
-4,2 %
United Kingdom
-4,1 %
Denmark
-4,0 %
Czech Republic
-3,3 %
Australia
-2,9 %
Sweden
-2,8 %
South Korea
-2,7 %
* The real interest rate is calculated as the difference between the interest rates set by the country's central bank and the current inflation rate. It can also be said that real interest rates show how money deposited in bank accounts is valued or devalued. Currently, bank deposits are losing their value in most countries.

 

If the wave of the strong dollar is indeed coming to an end, according to her, it is likely that gold will be around 1,900 USD per troy ounce next year. Silver can do similarly well. However, O'Connell stresses the higher volatility, so he recommends it mainly to patient investors.