The gold price has declined roughly 5% to $1,782.05 this year. In the meantime, inflation has shifted in a totally different direction, with the Consumer Price Index (CPI) indicating prices increased 6.2% from last year in October. This is the fastest increase in the Consumer Price Index in more than three decades. In such circumstances, traders should know to expect up ahead.
The Current State of the Gold Price
The yellow metal increased around 17% in the 2nd quarter of 2020 and about 10% in July the same year, reaching an all-time high of $2073 on 6th August.
Since that time, gold has fallen to $1,844 per ounce, despite reports of a Covid-19 vaccine. But, the vaccine's exhilaration is premature. The epidemic is not going away.
Notably, many 2020 estimates projected that precious metals prices would rise from $1600 to $1700 per ounce if economic and geopolitical upheaval increases.
Economic recovery after the pandemic increased, and rising inflation expectations in the middle of this year resulted in a decrease in price. In general, traders observed a fall in gold's price between January and March 2021 as a result of rising employment data in the US.
On 16th June, gold fell 4.7% to exactly $1,774.80 an ounce, which was its lowest price since the fall of April. This reversal happened after the optimism about the US economy's revival was announced by the Federal Open Market Committee. Gold is now trading at $1,782.80 per ounce.
The Expectation for the Near Future
Increasing inflation may temporarily shed light on gold since traders seek to hedge in order to fight the rising costs. Experts are expecting the trend to fade soon since inflation fears are projected to subside in 2022.
With inflation reaching a multi-decade maximum this year, traders have begun to buy gold as a hedge against inflation, and some experts have increased their near-term estimates in response to increasing prices. However, supply shocks, as well as shipping constraints, which have pushed prices higher, are projected to subside by 2022.
While experts emphasized inflation's rising relevance in sustaining gold prices throughout the last half of 2021, they have also expressed worry about its influence in 2022.
An increase in expected inflation, along with higher minimum rates, could ultimately drive real rates in the US higher, further weighing on gold prices. Analysts at UBS said that gold prices are expected to drop in 2022, with a year-end projection of $1,650 per ounce.
Conclusion
Unlike most times, gold investors are going through fluctuating conditions. Intimidated by the uncertainty of the gold market, many investors are looking elsewhere. They are hoping that cryptocurrency might be able to replace gold as an inflation hedge.
However, some analysts argue against counting on cryptocurrencies, as these highly volatile new currencies can also suffer extended downturns and extreme volatility, especially when countering inflation.
