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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. The reopening trade, fast economic growth, solid pent-up demand, a strong stock market, a rising greenback and chances of a hawkish Federal Reserve weighed on gold prices.
Although 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 0.4% this year compared with a 20.6% decline in the S&P 500. Still, the yellow metal went a long way in protecting investors’ assets. Gold ETF net outflows totaled 53 tons in May, per kitco.com.
Investors now will be curious to know what lies in store for gold ETF investing for the rest of 2022. Let’s figure out. Let’s figure out the pros and cons of gold investing.
Negatives
Rising Rates & Strong Greenback
Gold normally underperforms in a rising rate environment as it is a non-interest-bearing asset. With the Fed likely to turn more hawkish in 2022 and raise rates, many fear that a gold rally may not be possible.
Since rates are rising this year in the United States, the U.S. dollar has been gaining strength. The U.S. dollar jumped to the strongest since April 2020 on Fed rate hike bets. This is a negative for gold as the metal is priced in the U.S. dollar. Hence, the metal shares an inverse relation with the greenback.
But some investors are hopeful of the fact that real yield is still low. Hence, gold might stay afloat on this ground as long as inflation is hot due to global supply chain disruptions. We believe inflation will run high in the first half of 2022.
ECB to Hike Rates
Meanwhile, the ECB is also likely to end its QE program at the start of July. The ECB "intends" to hike rates by 25 bps in July but they may also enact a 50-bp rate hike in September. The new ECB projections for annual inflation are 6.8% for 2022, and down to 3.5% for 2023 and 2.1% in 2024 — higher than in the March projections. Several emerging economies are also hiking rates. Since gold is a non-interest-bearing asset, such policy tightening spree of various central banks go against gold investing.
Positives
Renewed Upsurge in Virus Cases
Infections caused by new coronavirus strains had a considerable adverse impact on Wall Street in the previous waves. Even if we have handled the latest strain Omicron, further mutations of the virus may continue to throw the global market in a wavering zone occasionally. The central banks will not likely be of much support anymore and a massive fiscal support is also unlikely. All these factors can brighten up the safe-haven trait of gold.
U.K. Covid-19 cases rose for the first time in two months in the week ended Jun 2, according to new estimates from the Office of National Statistics. The same is happening in countries like China and India. China's capital Beijing is experiencing an "explosive" COVID-19 outbreak connected to bars, a government spokesman said on Saturday, as the commercial hub, Shanghai, conducted mass testing to contain a jump in cases tied to a hair salon, as quoted on Reuters.
Gold Price Projections
In their 2022 gold price forecast, analysts at the U.K.-based precious metals research firm Metal Focus said they expect gold prices to average the year around $1,830 an ounce, which would be a record-high average, as quoted on kitco.com. The current price is $1,828 an ounce.
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) , 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 in solid shape. Gold investors should closely watch the economic and market events before taking any decision.
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What Lies Ahead of Gold ETFs: Pain or Gain?
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. The reopening trade, fast economic growth, solid pent-up demand, a strong stock market, a rising greenback and chances of a hawkish Federal Reserve weighed on gold prices.
Although 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 0.4% this year compared with a 20.6% decline in the S&P 500. Still, the yellow metal went a long way in protecting investors’ assets. Gold ETF net outflows totaled 53 tons in May, per kitco.com.
Investors now will be curious to know what lies in store for gold ETF investing for the rest of 2022. Let’s figure out. Let’s figure out the pros and cons of gold investing.
Negatives
Rising Rates & Strong Greenback
Gold normally underperforms in a rising rate environment as it is a non-interest-bearing asset. With the Fed likely to turn more hawkish in 2022 and raise rates, many fear that a gold rally may not be possible.
Since rates are rising this year in the United States, the U.S. dollar has been gaining strength. The U.S. dollar jumped to the strongest since April 2020 on Fed rate hike bets. This is a negative for gold as the metal is priced in the U.S. dollar. Hence, the metal shares an inverse relation with the greenback.
But some investors are hopeful of the fact that real yield is still low. Hence, gold might stay afloat on this ground as long as inflation is hot due to global supply chain disruptions. We believe inflation will run high in the first half of 2022.
ECB to Hike Rates
Meanwhile, the ECB is also likely to end its QE program at the start of July. The ECB "intends" to hike rates by 25 bps in July but they may also enact a 50-bp rate hike in September. The new ECB projections for annual inflation are 6.8% for 2022, and down to 3.5% for 2023 and 2.1% in 2024 — higher than in the March projections. Several emerging economies are also hiking rates. Since gold is a non-interest-bearing asset, such policy tightening spree of various central banks go against gold investing.
Positives
Renewed Upsurge in Virus Cases
Infections caused by new coronavirus strains had a considerable adverse impact on Wall Street in the previous waves. Even if we have handled the latest strain Omicron, further mutations of the virus may continue to throw the global market in a wavering zone occasionally. The central banks will not likely be of much support anymore and a massive fiscal support is also unlikely. All these factors can brighten up the safe-haven trait of gold.
U.K. Covid-19 cases rose for the first time in two months in the week ended Jun 2, according to new estimates from the Office of National Statistics. The same is happening in countries like China and India. China's capital Beijing is experiencing an "explosive" COVID-19 outbreak connected to bars, a government spokesman said on Saturday, as the commercial hub, Shanghai, conducted mass testing to contain a jump in cases tied to a hair salon, as quoted on Reuters.
Gold Price Projections
In their 2022 gold price forecast, analysts at the U.K.-based precious metals research firm Metal Focus said they expect gold prices to average the year around $1,830 an ounce, which would be a record-high average, as quoted on kitco.com. The current price is $1,828 an ounce.
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) , 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 in solid shape. Gold investors should closely watch the economic and market events before taking any decision.