What to expect from gold and silver in 2022
It is generally accepted that precious metals and gold in particular are a traditional defensive asset, so their price rises during crises. The outgoing year as a whole was not the easiest for the economy, and it was thought to give an incentive for the gold markets, but in general, the year was more disappointing.
If, against the backdrop of the spreading first wave of the pandemic in 2020, the price of gold reached an all-time high of $2,000 per ounce, then there was no further growth. And the closure of the mines eventually led to a decrease in world gold production.
At the same time, investors in metallurgy look at 2022 with optimism.
Why do we need gold in the 21st century?
Central banks and gold bullion banks are the main buyers of gold. Central banks buy it to replenish gold and foreign exchange reserves. Gold is considered to be a good analogue of a means of payment due to its physical qualities and the finiteness of its reserves.
Gold bullion banks are bought and then sold to resellers or final dealers: industrialists, jewelers or private investors. The jewelry industry accounts for 46% of gold, 22% - for private investors.
Gold bullion banks use gold in their operations as collateral for transactions or for insurance (hedging) of currency transactions. The leader in gold mining in the world is China. The country accounts for 11.7% of the world volume (according to the results of 2020). There is also the greatest demand for this valuable metal. According to experts, the main reason for this is not so much economic as social and cultural traditions. People prefer to invest in understandable assets: real estate or gold.
Forecasts for 2022. Reasons for optimism and risks
There are good reasons for the optimism of investors in precious metals. But at the same time, there are risks.
One of the biggest threats to hard assets next year will be a rise in the US dollar index in anticipation of a tightening of the Federal Reserve's monetary policy.
The traditional inverse relationship between gold and the dollar (the cheaper the dollar, the more expensive gold) has weakened during the pandemic as investors began to use both assets as safe havens. But now the tradition is resurfacing.
It is also unlikely that last year’s dynamic, when the markets of precious metals practically did not participate in inflationary processes, will repeat.
Low spot prices reinforce fundamental arguments in favor of gold and silver. Low prices for mined products mean that miners have less incentive or opportunity to increase production in the face of growing demand.
The Silver Institute predicts a supply shortage in the physical silver market in 2022. Analysts note that industrial demand is growing, especially in the field of green energy, where the white metal is used in solar energy and electric vehicles.
Demand for gold is also strengthening. Global demand for jewelry has rebounded this year. This is especially evident in the case of India, the largest in terms of customer base, where gold has great cultural significance.
Gold buying by central banks could increase if tensions escalate with China, Russia and other countries opposed to the dollar as the world's reserve currency.
Speculatively speaking, futures trading is dominated by institutional short sellers. Small-time speculators are still more passionate about Wall Street products and cryptocurrencies than anything tangible.
If enthusiasm for paper and digital assets decreases, then the gold and silver markets could be the main beneficiaries. At some point, stimulated financial markets will run out of fuel. However, inflation itself will almost certainly continue. The question for investors is how to deal with the next wave of inflation.
There are many potentially viable games available, from stocks (in favorable sectors) to cryptocurrencies, real estate, collectibles and various hard assets. But at the heart of any inflation hedge strategy for 2022 (and beyond) will be sound money in the form of physical gold and silver.