One asset holding up through the early 2022 market turmoil: gold.
Rising geopolitical tensions in Europe and a slide in major U.S. stock indexes has sent investors rushing into the haven metal. On Friday, they poured a record net $1.6 billion into SPDR Gold Shares, GLD -1.62% the world’s largest physically backed gold exchange-traded fund, according to Dow Jones Market Data. When individuals buy shares of an ETF backed by physical gold, they are buying a stake in a trust. The ETF tracks the metal’s price since the asset held by that trust is metal.
Demand for gold climbed after tensions between Russia and Ukraine escalated last week. Investors often flock to gold during geopolitical turbulence, expecting it to hold value even when other assets struggle.
“Gold thrives on uncertainty, and we’ve got that by ladle full,” said Rhona O’Connell, head of market analysis EMEA & Asia at StoneX. She estimates that gold will trade at an average of $1,900 a troy ounce in the second half of 2022.
Gold prices have traded in a relatively narrow range in 2022, hovering below their November highs of $1,870.20 a troy ounce and 2020 record of $2,051.50. Bets the Federal Reserve will act aggressively to curb inflation helped pull the metal back from those levels, reducing the appeal of gold as protection against rising prices. Expectations for rate increases also have sent U.S. government bond yields higher, making them more competitive with gold, which pays no regular income.
Most actively traded gold futures ended Tuesday up $10.80, or 0.6%, to $1852.50.
Analysts said recent declines in the stock market also could support gold, with the S&P 500 and Nasdaq Composite recently wrapping up their worst week since March 2020. Investors also have battered other speculative bets, including bitcoin, which some cryptocurrency enthusiasts have touted as another form of inflation protection.
“Gold has re-emerged as a safe haven and portfolio tail hedge given repricing and selloff in equities and crypto assets,” said Aakash Doshi, head of commodities for North America at Citi Research.
One potential new source of pressure for gold prices is this week’s Fed meeting, which investors plan to watch closely for clues on the path of interest-rate increases. Yields on two-year Treasury bonds, which typically climb when investors expect tighter central bank policy, have lately risen to their highest levels since February 2020.
Some investors said expectations for Fed policy tightening were already weighing on gold, helping push it down to a 3.5% loss in 2021, its largest percentage decline since 2015.
“Gold was the problem child last year, but it might be the star student this year,” said Robert Minter, director of ETF investment strategy at abrdn, which offers the Aberdeen Standard Physical Gold Shares ETF with net assets around $2.4 billion as of Dec. 31.
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Appeared in the January 26, 2022, print edition as ‘Investors Pile Into Gold for Safety.’
