Gold price is potential to increase

Trường Lăng

June 9, 2022


Gold price is potential to increase

Trường Lăng

June 9, 2022

In the context that the US increased inflation and Russia-Ukraine geopolitical crisis has not ended, gold is reviewed to be possible to increase in the coming time.

tiem vang bac lon nhat o tphcm
Gold is seen as a store of value in times of economic crisis and a hedge against inflation.

Demand for shelter from inflation pressure

Gold price continued the increase track in the last week of May 2022 as USD fell down to a one-month low and investors fled from stocks in the recent sessions.

Said DailyFX, analyst Warren Venketas, gold is in an ideal environment with the most supporting factors. Flat US 10-year bond yields also boosted gold prices by reducing the opportunity cost of holding gold.

Gold is considered as a store of value in the time of economic crisis and a hedge against inflation. The geopolitical crisis put a burden on the global economy and renewed the investors’ interest in gold, pushing the gold prices to $2,070/ ounce in March 2022, just less than the highest rate in all ages and forecast that this rate will be repeated soon.

The World Gold Council (WGC) said that, in the first quarter of 2022, the gold market’s solid start, with global gold demand (excluding OTC market) increased by 34% against the same period of the last year, gained 1,234 tons and 19% higher than the five-year average of 1,039 tons. Gold ETFs with the strongest inflows of the precious metal (with 269,000 tons since the third quarter of 2020, a reversal from 173,000 tons annually from 2021), in part due to the rising gold prices.

Meanwhile, the first-quarter of 2022 gold bullion and coin demand is 11% against the five-year average, at 282 tonnes. However, lockdown extensions in China and high prices in Turkey have contributed to a 20% drop in this demand from a very strong rate in the first quarter of 2021.

The world central banks’ net purchase is increased as twice as the previous quarter, adding more than USD 84 billion to the official gold reserves in the first quarter of 2022. In which, Egypt and Turkey are the biggest buyers.

Said WGC, the global total gold supply in the first quarter of 2022 increased by 4% over the same period of the last year. This is driven by the strong mining output, which gained 856 tonnes. In addition, recycling activity increased 15% against the last year, gained 310 tons due to the higher gold prices.

Judged Mr. Louise Street, senior EMEA analyst at WGC, the first quarter of 2022 is the tumultuous quarter, marked by geopolitical crises, supply chain difficulties and inflation increased. These global events and market conditions have strengthened the gold position as a safe shelter channel, not only for investors but also for retail consumers, thanks to its unique position.

Pushing the price raise prospect of gold 

Said Mr. Huynh Trung Khanh, Vice Chairman of Vietnam Gold Traders Association (VGTA), the factor affecting gold price in 2022 is inflation appearing in many countries. The next factor that can drive gold prices higher in 2022 is the global geopolitical situation with many uncertainties and gold will become a safe shelter for investors in these sensitive periods.

Economic and financial analysts warn that the normalization of monetary policies around the world is starting to expose the major problems in the global economy that are caused by easing monetary policy and huge amount of liquidity. Gold prices in 2022 is differently forecasted, but it will depend on how the market reacts to inflation, central bank policies, geopolitical tensions.

The combination of high inflation and increased geopolitical tension is likely to boost gold demand among the investors around the world. Meanwhile, consumer demand is recovering from weakness due to Covid-19 epidemic, continued growth in jewelry demand may be restrained by increased costs and the overall economic downturn.
Said Mr. Louise Street, Senior EMEA Analyst at WGC

Gold’s position as the leading hedge against inflation will likely push gold prices higher, reaching the prices more than $2,000/ounce. However, the interest rate raise often puts pressure on non-yielding assets like gold. The US Federal Reserve (Fed) will be forced to accelerate the already aggressive monetary policy tightening.

Emphasized Jerome Powell, Fed Chairman, the inflation control determination supports the interest rate raise until the prices stabilize again. This is what the stock market is worried about.

However, if inflation cooled down earlier, the risk of recession would be significantly reduced. There are many opinions that, the current inflation rate with a 50 basis point increase in USD interest rate is enough. However, if the Fed adjusts further by 75 points, it will be a shock to gold. At the same time, the opportunity cost of owning gold drops down.

Judged Dr. Nguyen Tri Hieu, Economic expert, Fed’s increase in USD interest rates is to control inflation when inflation in the US has reached the highest rate in the past 40 years. When the US greenback base rate increases, the value of USD and bond yields will go up and according to the laws of finance, the price of gold will fall.

At this time, gold and USD will, however, increase in the same direction. USD increase due to the economic crisis and during the crisis, the gold price will increase because this is a financial safe shelter, especially in the context of the US current geopolitical instability and high inflation.

Source : Baodautu

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