Investing in a precious metal is a simple, affordable and effective way of investing for citizens of many countries. Banks offer bullion and coins: they can be bought and then sold at a profit to the same financial and credit institutions..
Investing in gold has long become an analogue of buying foreign currency – a way to save personal savings from inflation. But when working with this asset, it is important to monitor price dynamics in a timely manner and make quick decisions, since its value not only grows, but also falls. And in 2022, the headline question becomes especially relevant.
The price is determined by the market and the regulator…
The cost of bullion and coins in banks depends on the prices set daily by the Central Bank. The regulator is guided by a simple rule: the price of a precious metal within the country is determined by its quotations on the world market, more precisely, on the London Stock Exchange. The cost is fixed in national currency at the official exchange rate. Therefore, gold prices in Ukraine and Russia are actually determined by the world market and depend on the state of health of national currencies. These are the two most important cost components.
At the beginning of 2021, gold reached $1,960 an ounce. Many expected a rise to $2,000. Some even predicted $3,000. But in March of last year, the quotes sank to $1,680 per ounce.
and correct crises
What is the reason for the fall? The pandemic played a decisive role, or rather, the processes of adaptation of the global economy to the new realities. The high price in the first months of 2021 was largely caused by the flow of information that the coronavirus cannot be overcome, the pandemic is dragging on and there is no clear date for its end. At that time, many analysts predicted the continuation of the quarantines and, consequently, the fall of the world economy.
But it turned out that we have already learned to live in conditions of constant fighting against the disease, and even the maintenance of quarantine restrictions did not have a devastating effect on the pace of the planet’s economic recovery. In the spring, the resurgence became apparent and interest in gold, as a safe haven, began to wane.
The Golden Paradox: Growth Problems
The main precious metal traditionally feels good in the flow of bad news. The presence of difficulties in the economy stimulates the growth of gold, and the improvement of the situation guarantees… a decrease in its value.
Here is a vivid example: in 2007, gold was trading at about $700 an ounce, and in 2009, when the crisis hit, its price first exceeded $1,200 and then shot up to $1,900. ended, quotes fell to the $1,100 level. A similar situation developed in the current crisis: before the pandemic, gold was selling at $1,500 per ounce.
What to expect from price swings?
Today, bar and coin holders are increasingly wondering: what is the probability that the value of the precious metal will regress to the “pre-pandemic” level? In the first days of January, world market prices exceeded $1,800 an ounce. Many analysts call this mark the “psychological price”, since the value of the asset periodically falls and then returns to this level. And the “swing” keeps turning.
The consensus forecast of global gold prices from Bloomberg seems curious: the agency’s experts calculated it based on estimates from major investment banks. According to his expectations, in 2022 the price of the precious metal will drop to about $1,705 and in 2023 to $1,650 an ounce.
As you can see, reputable analysts are betting on gold falling, advising to refrain from buying and wait for a more favorable price. The option with a future for the precious metal in a short position also seems convenient: in other words, selling gold now with the expectation that it will be possible to buy it back at a more comfortable price later.
What is the reason for pessimism?
The dynamics of natural gas prices are to blame for everything: the blue fuel set record after record at the end of 2021. Oil prices are also rising. All of this leads to talk that the period of high inflation will continue into 2022. This means that Fed rates are likely to start rising. The leadership of the Federal Reserve has already announced the start of the cut in the active dollar issuance process to mitigate the impact of the pandemic on the US economy.
Therefore, the period of low rates is coming to an end. Moreover, everything is more or less clear to all participants in the global financial market. After the Fed, US government bond rates will rise. In such situations, global investors are selling other assets and moving money into US Treasury securities, as the most popular and trusted investment objects. Investors will obviously also start selling gold as bonds will make more money.
A similar situation developed after the 2008-2009 crisis, when gold collapsed as a result of the Fed’s rate hike. This precious metal plays the role of a safe haven for investors, an asset that allows them to survive crisis storms. But the meaning of being in such a port ends at the end of the crisis.
Analysts therefore forecast a drop in gold prices in 2022, with a likely worsening of the trend in 2023, as many believe that by then the world will definitely forget about the coronavirus. And then gold will return to the value of the times “before the pandemic”.
Buy or sell?
What should private investors from Ukraine, Russia, Belarus and the CIS countries do? Perhaps the smartest thing is not to rush into the purchase. It is very likely that the prices of the main precious metal, even taking into account the devaluation of national currencies, will fall in 2022. Accordingly, it will be possible to buy cheaper than now, you just have to wait.
Today is the time not to buy, but to sell previously purchased bars, before prices drop. Also, those who invested in gold in 2014-2015 at around $1,000 an ounce, will be guaranteed a decent return on investment. And at the end of 2022 (or even 2023), you can invest in bullion again, already at a more pleasant price.
It’s time to think about those who refrained from “gold” deposits. Despite price fluctuations, this asset has been and continues to be an interesting investment for the future. The strategy is simple: you need to carefully monitor the price dynamics to buy at the minimum and long term (5 years or more). Despite periodic drops, investment of funds in gold over long time intervals remains relevant and convenient. Judging by world trends, such investments provide decent returns.
Of course, there are times of radical price reductions. But even the most notorious pessimists do not expect the price of gold to fall below $300 per ounce (to the level of 2000). The issuance of dollars significantly increased the number of “evergreen” securities in circulation, and thus all assets in dollar terms rose in price. Everything on our planet is interconnected.