Why Gold Lost Its Mojo

A disappointing year

News about rising inflation dominated the news of 2021. Still, gold didn’t really react to this news. We also saw record low real interest rates. Gold decided to do nothing. The question is, has gold lost its portfolio characteristic as inflation hedge? Well, not so fast! Gold had over two years of record-breaking performance and did exactly what it was supposed to do in spring of 2020, when the pandemic started. Also, long term inflation expectations are still quite low. Gold took a deep breath in 2021 after a very good performance. It will return with further gains, when seemingly short-term problems become permanent.

Resilience

While people are disappointed that gold didn’t move higher, they should be happy that it didn’t really depreciate in value. Gold has been largely moving sideways in 2021. Gold defended its territory well, even though several factors spoke against this trend. First, the tapering debate should have actually been the final stroke for gold. The US dollar also appreciated significantly. This is definitely not a perfect environment for gold. Seeing gold under this light, can it regain its strength?

A Renaissance of gold in 2022?

First, we expect investor demand to pick up again in 2022, as investors slowly regain their appetite, which they lost during the pandemic. We are also witnessing renewed demand from central banks around the world. The Federal Reserve’s intention to tighten monetary policy is doomed to fail, no doubt about that financial repression and negative real rates are here to stay. We also see strong support on the technical side. All of this should support gold in 2022. The long-term perspectives for gold are still very bullish.

Conclusion

From hero to zero, the performance of gold since its new all-time high in 2020 sure was a rollercoaster. To summarize, gold has shown that it can do what it is supposed to do. Even under bad circumstances, it holds its own. If we combine this with the strong bullish signals, which we see for gold, the year 2022 should look quite good for gold investors around the world.