Gold has been notoriously difficult to predict in the past. The supply always remains relatively stable, which is why it’s such a good way to hold value. Extracting and refining gold is a very labor-intensive process, so the annual supply of gold increases at a very slow and steady rate, meaning no surprises on the market. The other factors that influence gold are the value of fiat currencies like the US Dollar. The Euro, British Pound Sterling, and Japanese Yen, to a lesser degree, also influence the price of gold.
Generally speaking, investors flock to gold as a stable store of value when currencies and other monetary instruments are no longer reliable. This can happen during times of recession, sovereign debt default, and black swan events like pandemics. While the supply of gold is very stable, the world events that surround gold can vary wildly and cause the price of gold to change.
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2022 Overview of Gold
So far, 2022 has been a rather disappointing year for gold though many are hopeful for an improvement in Q4. For the majority of the year, the spot price of gold dropped and reached deep into the $1600’s range. This is due to the US dollar’s relative strength against other currencies. As the “transitory inflation” narrative collapsed around the Federal Reserve in early 2022, the price of gold ticked up slightly. However, Chair Jerome Powell along with Treasury Secretary Janet Yellen, laid out a plan of slow and steady interest rate hikes as well as a transition from quantitative easing to quantitative tightening.
The treasury and stock markets responded well to this, and investors sold their gold as the Fed’s promise to tackle inflation was taken seriously. However, as 2022 drew on, the inflation rate only reached new heights at 8.9%. In late September and early October, the price of gold ticked up as faith in the fed began to fall.
This was precipitated by the British Pound Sterling falling to near dollar-parity as the Bank of England resumed quantitative easing, choosing high inflation over a recession. As a result, many investors in the USA are looking back to gold as a hedge against a similar decision made by the federal reserve.
Next Five Years
Over the next five years, the outlook for gold looks strong. Many investors in the West believe that the Bank of England’s decision to choose inflation over recession will be echoed by the Federal Reserve in the coming months. If this happens, the inflation rate of the US dollar could potentially increase beyond the inflation rate experienced in the 1970s and remain there for up to a decade.
The Federal Reserve has almost always opted to kick the proverbial can down the road whenever a difficult decision needs to be made. Especially with the upcoming elections in 2024, it is unlikely that Chair Powell will make any real moves to control inflation. If this happens, even to a small degree, investors will almost certainly flock to gold and drive gold’s price to new highs. It’s difficult to say what price gold may reach, however, many experts agree that the US could reach inflation rates that reach dangerously close to hyperinflation.
Before you make any decisions about purchasing gold, be sure to contact our representatives at Nationwide. We’re standing by, ready to answer any questions you may have about physical gold ownership and help you understand your options.
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