Insights

2022 has been a difficult year for many asset classes. Markets were historically volatile, with higher-than-expected inflation, quickly rising interest rates, the Russia-Ukraine war and the threat of a global economic recession. 

The tough year continued in October for many asset classes, including gold and other precious metals. Gold demand, however, was strong in Q3 2022 as long-term investors took advantage of lower prices to build positions.

Since Q2 2020, gold has held above $1,700 but in mid-September, a significant risk-off wave occurred, breaking nearly every risk asset lower. The primary causes were higher than expected inflation data forcing yields (especially real yields) and the USD higher, two important gold drivers.

July was another difficult month for most asset categories and was characterized by selling capitulation into exhaustion. Much more aggressive Fed rate hike expectations relative to other global central banks were a significant cause of U.S. dollar (USD) strength and rising real yields, which adversely affected gold.

Gold continued to perform as a safe haven store of value in what has been one of the most challenging six-month periods for markets in decades. Gold has managed to stay above the $1,800 support level despite the broader market carnage.

May saw selling across most asset classes and scant appetite for safe haven assets such as gold. However, gold bullion has outperformed many other asset classes YTD and continues to do its job. 

Gold held in ETFs has increased sharply this year as the safe-haven flight continues. April was tough on many investment sectors, with the S&P 500 Index down 8.80%, the Nasdaq Composite Index declining 13.37% and U.S. Treasury bonds falling 3.10%.

Gold posted its all-time highest quarterly close on March 31, 2022, ending a volatile month that helped gold climb above $2,070 on March 8. While gold may have climbed back to its highs on safe-haven flows, other positive gold supports are definitely in play.

"The Russian-Ukraine conflict is probably one of the biggest macro drivers in the marketplace... Before Russia-Ukraine, the gold market had started shaking off the hawkish Fed rhetoric. Russia-Ukraine has just amplified gold's value as a safe haven asset."

Gold bullion is up 4.36% YTD through February 28, 2022, and silver bullion has increased 4.90%. Gold mining equities rallied. Investors sought safe-haven assets given the heightened concerns over rising interest rates and the escalation of the Russia-Ukraine conflict.

Gold reached a high of $1,848 in January, but slid following the Fed's exceptionally hawkish statements at the January FOMC meeting. Market risks are rising and we believe that gold, as it did in 2018, is likely to stage a breakout given its safe haven characteristics.

Based on historic patterns, gold's lengthy consolidation indicates that prices have the potential to rally sharply and quickly in the coming year. We explain why in our List of Top 10 things to watch for gold investors.