Will the demand for gold continue in light of the high interest rate and inflation?

03:38 PM

Saturday 15 January 2022

I wrote – Yasmine Selim:

Rising inflation globally and declining markets may lead to continued demand for gold as a hedge and a safe haven for investors, according to the World Gold Council’s 2022 forecast report.

The report said that gold may face in 2022 similar circumstances to what it faced last year, in light of the intensification of competition and challenges with other hedging tools.

The report suggested that the gold price would interact with the interest rate hike in light of the trend of global central banks to raise interest rates to control inflation.

The report said that higher interest rates could create headwinds for gold, but history shows that their impact may be limited.

Gold prices usually decline with the rise in the interest rate globally, as investors resort to taking advantage of higher interest rates and investing in the dollar.

Officials of the Federal Reserve (the US Central Bank) expected last month to raise interest rates 3 times this year and a total of 8 times in the next three years, which means that central banks around the world will follow the US Central Bank and decide to raise interest rates.

The World Gold Council said there is a lot of focus on the relationship with US interest rates, even though gold is a global market, and not all central banks may move as fast as the Fed.

“Looking ahead, higher interest rates pose risks to gold price performance, but the devil is in the details,” according to the report.

He said that high inflation and market downturn are likely to lead to continued demand for gold as a hedge, and central bank demand for gold and jewelry may provide additional long-term support.

The report notes that gold has historically performed well amid high rates of inflation. In years when inflation was above 3%, the price of gold increased by 14% on average.

The inflation rate in America last month was the highest in 40 years.

The inflation index in America is an important data for the global economy, given what the US economy represents to the world, as it is the largest economy in the world.

The report believes that the market declines will continue in the face of the seemingly endless flow of new variables from the Corona virus, as well as the escalating geopolitical tensions.

He said that gold can be a valuable risk management tool for investors, as it has a historical record of mitigating the negative impact of stock market declines.

Investors usually resort to buying gold in periods of economic uncertainty, as it is considered a safe haven and keeps the value of money as it is.

And the price of gold ended last year’s trading, declining by 4% compared to its price in 2020, to record 1806 dollars an ounce.


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