BlackRock says ‘out of favour’ gold may see fortune turn in 2022

BlackRock says ‘out of favour’ gold may see fortune turn in 2022
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SINGAPORE (Dec 16): Gold could climb in 2022 after a lackluster year, driven by a combination of real interest rates, US dollar performance and demand for haven assets, according to BlackRock Inc.

The precious metal is down 6% in 2021, and is heading for its first annual decline in three years as central banks reduce stimulus and Covid-19 vaccines have helped reduce pandemic-linked risk. 

Gold “appears relatively out of favour at the moment,” said Evy Hambro, global head of thematic and sector-based investing at BlackRock in an emailed response to questions, though he said that the current negative investor sentiment toward bullion presents “more upside risk than downside risk next year.”

Money has been flowing out of physically backed gold exchange-traded funds this year. SPDR Gold Shares, the largest gold ETF, has posted net outflows of over US$10 billion so far this year, the most since 2013, equivalent to about 193 tons of bullion. 

“Historically, times at which sentiment toward gold and gold equities becomes very negative have typically presented buying opportunities,” said Hambro, adding that net length in gold futures is also down. 

Robin Tsui, Asia Pacific gold strategist, Global SPDR Business at State Street Global Advisors, said the dip in the precious metal’s price may pave the way for renewed interest in ETFs in 2022 from investors seeking a hedge against growing global uncertainties.

‘Inflationary Forces’

Gold’s role as a traditional hedge against price pressures may gain further traction as inflation gathers pace, stoked by unprecedented amounts of stimulus and supply chain disruptions.

Federal Reserve Chair Jerome Powell signaled that inflation is now the biggest challenge to keeping economic expansion on track and returning the labour market to pre-pandemic levels. 

“We currently see some powerful inflationary forces, and this leads us to believe inflation expectations will continue to rise through 2022,” said Hambro.

The Federal Open Market Committee’s median projection for 2022 inflation was revised to 2.6%, from 2.2% in September.

At their last meeting of 2021, which concluded Wednesday, Fed officials intensified their battle against inflation by shifting to end the central bank’s asset-buying programme earlier.

They also laid out a road map for a series of rate increases in the coming years, starting with three hikes in 2022. 

Higher rates typically weigh on non-interest-bearing gold, but prices have edged higher to trade at US$1,781 an ounce Thursday, as the hawkish pivot is likely already priced in. 

“It’s real interest rates which are the most important driver for gold, and they’re driven by interest rate and inflation expectations,” said Hambro. “We see a strong argument for adding to gold for diversification today, given equity markets are around all-time highs and there is still significant pandemic-related risk.”