Gold in 2022: More volatile than roller-coaster ride

Chennai: A roller-coaster ride may have less ups and downs than what the gold market has in 2022 is what industry experts say looking back at the year that is set to end soon.

Navneet Damani, senior V-P (currency & commodity), Motilal Oswal Financial Services, said: "A roller-coaster ride has less ups and downs than what the bullions market had in the year of 2022. Both the metals, gold and silver, kept the market participants on edge."

According to Damani, the Comex Gold has made a high of about $1,935 and a low of about $1,630, while silver on other hand made a high of about $25 and low of about $18.There are few factors which triggered volatility in the market like, move in Dollar Index & yields, aggressive monetary policy stance from major central banks, rising inflationary concern, geo-political tension, which led to this volatility.

Concurring with him are Chirag Mehta, CIO and Ghazal Jain, Fund Manager. Alternative Investments, Quantum AMC. who said in a report: "Gold prices approached an all-time high of around $2,070 in March on the back of risk aversion triggered by the Russia-Ukraine war. But later, as the geo-political risk premium waned coupled with the US Federal Reserve's tightening spree to combat sky-high inflation, prices faced heavy downside pressure."

Pointing out the repo rate hikes by the Reserve Bank of India (RBI) and the US Federal Reserve, the two experts said the action resulted in the flight of money from risky assets to the US dollar as the real interest rates (indicated by US 10Y Treasury Inflation Protected Securities) turned positive for the first time in two years in May 2022.

The Quantum AMC report said: "This led to a sell-off in gold taking prices down to a two-and-a-half-year low of $1,614. However, as inflation started to moderate sequentially in Q4 2022, investors started anticipating a less aggressive Fed in 2023, and the dollar came under pressure helping gold prices to scale back up."

Quantum AMC officials said: "Stepping into 2023, we can't be sure if this reaction is justified given that inflation in the US remains well above the Fed's 2 per cent target, and the Fed has made it clear that while the pace of rate hikes could slow down from hereon, but the slower pace does not mean lower rates which the markets had started anticipating."

According to the Quantum AMC report, there can be another 50-75 basis points hike in the first half of 2023 by the US Fed which in turn could result in bouts of volatility in both risk assets and gold as real rates rise in an environment of cooling inflation and higher nominal rates.