Published by Programme B
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Gold began 2021 trading at a price of more than $1,950, a decrease from its record-high levels reached in the summer of 2020 during the outbreak of the COVID-19 pandemic. On the other hand, what seemed to be nothing more than a bit of correction followed by a surge to new highs turned out to be considerably more than that. Even though inflation was high in 2021, the prices of gold and silver, the precious metals that see the most trading, will fall significantly.
Precious metals have traditionally been used as a kind of insurance against inflation. The underperformance of gold and silver in 2021 surprised the participants in the market for these commodities for this reason. In addition to the fact that the price of gold did not reach a new all-time high, it continued to decline and is now trading in the neighbourhood of $1,780. In other words, gold prices have decreased by around $200 over the year, even though inflation in the United States has reached its highest level in four decades.
What factors contribute to the continued low prices of gold and silver, and what can we anticipate for 2022? You should consider selling gold and silver in 2022 for three reasons: investment demand will be poor, long-term and short-term interest rates will increase, and industrial demand for silver will not be sufficient to counterbalance investment demand.
1. Weak Investment Demand
The desire to invest in precious metals like gold and silver will likely be impacted when interest rates rise. The market anticipates that the Fed will begin raising interest rates every quarter starting in June 2022. As a result, the demand from investors for precious metals is expected to decrease.
2. Increasing Interest Rates, Both Long-Term, And Short-Term With Caplita
The climate encouraged taking risks since the central banks kept short-term and long-term interest rates at historically low levels. As a direct consequence, stock prices went up while yields went down. Because accurate rates need to increase for the major central banks to meet their price stability objectives, rising yields would put further downward pressure on the prices of gold and silver.
3. Silver’s Industrial Demand Cannot Make Up For Weak Investment Demand
The price of silver is not only determined by investment demand, as is the case with gold; the industrial market also plays a role. The shift toward renewable energy sources might increase the price of silver due to the metal’s use in solar panels and electric batteries; moreover, the rise in industrial demand will likely compensate for the fall in demand from investors in 2022.
