As with any other asset, the year has been marked by ups and downs for gold.
In early March, the price of gold jumped above $2,000 to reach its highest level since 2020. Indeed, the war in Ukraine caused investors to want to protect themselves from the resurgence of geopolitical risks and high inflation.
But since then, other factors have come into play, driving down the price of gold. And one of these factors is called… the FED (the Federal Reserve, the American central bank).
The FED began to aggressively raise interest rates to curb high inflation, pushing the US dollar to its highest level in more than two decades.
The price of gold stabilized in mid-May, supported by high inflation and geopolitical tensions. In September, it fell 2.6%, mainly due to the surge in the US dollar and the Fed’s continuation of its aggressive rate hike policy.
Although these two factors have weighed heavily on the price of gold, some investors still believe that gold could have done better, particularly due to rising global inflation.
Why didn’t the price of gold soar in the context of high inflation?
It is true that when inflation is high, the price of gold tends to rise. In 2022, inflation continued to be an important driver for the price of gold: investors bought gold to protect their wealth in the face of soaring consumer prices.
Additionally, gold is typically in high demand during times of geopolitical uncertainty, where it is used as a haven.
Gold is an ” emotional asset ” that reflects investors’ feelings about certain market events, including inflation. The price of gold also reflects these feelings.
So, following the high inflation, gold’s rise has not been as strong as expected, as some investors consider there to be less risk going forward.
But that doesn’t mean gold has performed poorly this year. On the contrary, according to Juan Carlos Artigas, chief analyst at the World Gold Council, gold has held up quite well despite all the pressure exerted by the soaring dollar and rising rates.
Choosing the right time to do so can be tricky as it is difficult to predict the price of gold. As you have seen in this SPOTLIGHT, the price of gold can be influenced by many factors at the same time. And that’s exactly what happened this year:
• The price of gold soared in early March, driven by fears of the consequences of Russia’s invasion of Ukraine and high inflation.
• At the same time, the Fed was raising interest rates, driving the US dollar to its highest level in two decades, which ultimately drove down the price of gold.
Even so, gold has resisted these pressures, leaving room for potential future upside.
