Gold prices get a boost after a banner year for the metal
By Daniel Tyson
20:16, 5 January 2022
Gold futures climbed higher Wednesday after the US dollar softened, moving comfortably above key support levels that include the 50- and 200-day simple moving average along with the psychological $1,800 level.
At 3:30 EDT (UTC-5) Wednesday, gold futures were up to nearly $1,816.30 a .12% increase, while spot prices hit $1,817.78.
Overall, 2021 was a very good sign for billions of investors that gold is holding up nicely. As investors look at the year ahead, gold should benefit from growing geopolitical risks as hot spots around the globe show no sign of cooling, said Edward Moya, senior market analysts for OANDA,
Banner year
Louise Street, Senior Markets Analyst, World Gold Council, agrees that 2021 was a banner year for gold.
“In 2021, demand for gold coins and small bars remained strong, and we believe this was primarily due to the combination of continued low rates, high inflation expectations and higher disposable incomes,” she told Capital.com. “In fact, US Mint sales in 2021 were the highest since 2009. Although the gold price was less positive in 2021, it was relatively stable for much of the year.”
Consumer research conducted by the World Gold Council confirmed that 68% of US gold coin investors see their coins as protecting wealth or making long-term above inflation returns, she said.
Gold a complement to equities
The group’s analysis shows gold is a complement to equities, bonds and broad-based portfolios.
“As the stock market has continued to reach ever greater valuations over the last couple of years, it is encouraging that investors have also added to their holdings of gold coins, which should diversify their investment portfolios and help provide a degree of protection against any downturn in equity markets,” she said.
The World Gold Council expects demand for gold coins and bars to remain strong – as expectations are for continued inflation pressures, and as real rates remain either negative or historically low – it could face headwinds if the gold price were to undergo prolonged weakness. A short-term dip in the price may, conversely, encourage investors to add to their holdings at a lower price in expectation of a rebound, Street said.
The strength began in 2020, fueled by fear over Covid-19, Street said, adding an additional impetus later in the year from interest rate cuts, which reduce the opportunity cost of holding gold, and fears of consequent inflation.
Demand also gained momentum from growing household savings as opportunities for discretionary spending on travel and entertainment were reduced during lockdown and those savings were instead diverted towards gold.
Coins vs. futures
Street pointed out there is a difference between investing in gold coins versus futures.
She explained that gold bars and coins offer the benefit of physical ownership and can be bought in small denominations.
“This needs to be weighed against the need to store the gold safely, which can carry costs, and the premium charged for manufacture. Premiums on bullion - particularly bars - are low but are proportionately higher on coins and on smaller products,” she said.
Derivative investing
Investing in derivatives requires more knowledge of financial securities than other forms of investing, so it may not be suitable for all investors – particularly if they require the use of an intermediary, she explained.
Meanwhile, gold-back exchange-traded funds are popular with investors to gain exposure to the precious metal. ETFs are traded on regulated exchanges, unlike derivatives, are “fully backed by physical gold,” with a few exceptions in small markets, she said.
Additionally, they are traded with low bid-asking spreads, while insurance and storage are included in their management, Street said.