The Overall Review of Gold In 2021

This year has brought us plenty of surprising, serious, and sometimes even challenging events. Some of them were mind-blowing. A plethora of events flooded the global markets, turning around tables for assets like bullion dealers in India across all classes. Gold, too, was not spared. Let’s have a look at how gold performed as a whole and what exactly were the main influencers that mattered for gold investors and traders -
 
Inflation - Unsurprisingly, inflation, supply chain issues, and the pandemic were all over the news throughout the year, with markets and investors ringing the alarm, and even the analysts were warning that all these issues won’t go away in 2022.

To round off the year, we collected the key events and news stories of 2021 to see how they affected the global market and physical gold buyers, and what they could mean for the year ahead.
 
Omicron – Though not as lethal as the delta variant, the Omicron virus swept the entire world in a jiffy. This fast-spreading variant has disrupted holidays and put infectious cases soaring.

Once again, restrictions were imposed, bidders were closed and the threat of a new strict lockdown was announced by many governments. This, once again, has put tourism and travel companies into a fix, running down their businesses. Investors sold off their shares in such companies.

As we said, though this variant is not as lethal, it still helped gold prices in rising high, appeasing many gold dealers in India. The mellow down that was set in by vaccination drives, was cut off by this new variant.
 
Inflation stops being “transitory” - That’s it. Fed chair Jerome Powell has finally admitted that this runaway inflation is not “transitory” after all. The U.S. central bank has been stubbornly repeating its “transitory” mantra almost all year long, ignoring the big elephant in the room. But when inflation hit a 30-year high and investors started ringing the alarm, it became too hard to deny it. So the Fed has come up with a new plan for 2022, which is to curb runaway inflation by gradually increasing interest rates. This, in turn, means that it might become more expensive for both businesses and consumers to take out a loan, which can discourage spending and reduce the supply of money in circulation. This is supposed to lower inflation and bring back a red-hot economy to safer growth levels.

But, according to Bloomberg Economics, if the Fed increases rates three times next year and signals it’ll keep going, the U.S. might be facing a recession in early 2023. Even in Europe, inflation soared 4.9%, which is the highest level since 1997. Unlike the Fed, ECB President Christine Lagarde said there will be no rate hikes next year, but also warned that the inflation might last longer than expected.
 
Supply chains - We faced a lot of things during the global lockdown -
volatile swings in consumer demand
Labour shortages
a giant container ship stuck in the Suez Canal

On top of that, the global chip shortage has slowed the production of a wide range of goods, from cars to smartphones, leading to a halt in the production of major industrial products.  
Any form of disruption results in negative growth in the economy. This is turn, increased gold prices, making the gold dealers in India and bullion dealers in India very happy.

China’s real estate bubble - Chinas economy and real estate sector sparked worries in the market, which had a spillover effect worldwide. The infamous Evergrande crisis was all over the news in the past few months as China’s sprawling real estate giant struggled to pay its massive $300 billion debt.

On December 10, Evergrande Group was declared by Fitch Ratings to be in default. This means that the company has formally defaulted, but had not yet entered into any kind of bankruptcy filing or another process that would stop its operations.

Investors fear that this could shake China's economy and hurt economic growth, which in turn would affect the world economy. This fear led investors to shift focus to gold, as time and again, the yellow metal has proved to be a haven asset in such uncertain times.

Summarising it, we can say that overall it was a decent year for gold. Gold prices remained lower in early 2021 due to the overbought level. However, prices recovered around 6000 rupees per 10 gram from the low level of 43300 due to high demand from the domestic Jewellery market. At the end of 2021, Gold prices are trading firmly above 48000 per 10 grams, which is, slightly down from December 2020. Continuing rising cases of Coronavirus variant Omicron and rising inflation may further support Gold prices for the year 2022. Energy and the prices of the other essential commodities are soaring again due to supply interruption increased due to pandemic, which may ask for safe-haven demand. We are expecting Gold prices to move towards higher in 2022.

Stronger Investor Demand Expected For Gold

 Gold’s rather sharp drop late last month preceded oil’s plunge by a few days. Given the inflation building in the system, this drop came as something of a surprise. However, on its latest 2-year chart we can see that this drop was something of a “storm in a teacup” with the price back down in a zone of support near to its moving averages and the overall trend remaining neutral for now. It is worth noting that gold’s seasonal turn strongly positive in just a few days from now and silver’s do early next year, so there is a good chance that we are at a great buy spot for the sector here.

Silver took quite a hit too and is now near to the bottom of the large trading range that began to form in mid-2020. Failure of the support in the $21 - $22 area would lead to further losses but that is only likely to occur in the event of the stock market being pushed off its perch, and there is still no sign of that. Silver’s seasonal are at their best by far all next month, January, so, as mentioned above concerning gold and gold coins in Mumbai, there is a good chance that we are at a great buy spot for the sector here.

Gold and gold coins in Mumbai prices held steady on Tuesday, caught between lower bond yields and a stronger dollar, as investors watched for signs of how soon the US central bank could wind down pandemic support measures when it meets later in the day. Spot gold was almost unchanged at $1,787.50 per ounce during early trading hours, and US gold futures were nearly flat at $1,787.90.

Market participants and bullion dealers in India will closely track the upcoming Federal Open Market Committee meeting to see how the central bank reacts to elevated inflation, which will result in likely larger price moves. The dollar steadied, limiting demand for bullion for buyers holding other currencies. Meanwhile, US Treasury yields ticked up from a one-week trough touched in the previous session, also pressuring gold.

On the global stock markets, investors are currently cautious and take cover. The attention of market participants this week is primarily focused on the upcoming central bank meetings from the middle of the week. For Tuesday's trading, negative signs are expected in Europe, after the markets in the US and Asia have already gone into reverse gear.

The crucial week is headed with a lot of excitement as the US Fed will meet for the last time for the calendar year 2021 on 15th December. They will meet to decide the trajectory of inflation from ere. GDP outlook and of course the action on speedier taper on bond purchase program, which is presently running 30bn taper per month.

On Friday, Dow gained +216, and DOW FUT managed 36000+ once again on ease of worries over OMICRON virus threat as to date no fatalities have been reported anywhere due to this new variant. Overall, the view on gold should be clear in the short term after the Fed’s key verdict on 15th December.

The US Federal Reserve is likely to raise interest rates. However, this will not change the environment of negative real interest rates, which is favourable for gold and gold coins in Mumbai. This speaks for a stronger investment demand again.

Is Gold Heading To Regain Its Safe Haven Appeal

Since the early 1980s, the major factor that has driven gold prices for decades were growing debt, negative interest rates and market instability. Inflation wasn’t of really much concern. Gold jumped from under $300/oz in the early 2000s to over $2,000/oz last year and has since hovered around $1,800/oz, much to the chagrin of the gold dealers in India. Meanwhile, Christian noted, the correlation between inflation and gold has been low in the past couple of decades, and at times negative, though it may be making a tentative return.

Gold prices went on a volatile ride during November, rising toward USD 1,900 per troy ounce (oz) in the early stages of the month, as official inflation rates in the United States topped 6% year on year. The precious metal was unable to hold onto these gains, with gold plunging more than USD 100oz in a couple of days after Jerome Powell was confirmed to serve another term as the Chair of the U.S. Federal Reserve.

Despite the intra-month swings, gold ended the month up 2% and has now climbed more than 100 US dollars (+7%) since the lows seen in late March 2021. This sharp rise in the yellow metal has fuelled speculation about bullion re-emerging as investors’ haven in the wake of Omicron virus concern, making it a good day for the bullion dealers in India,. According to commodity market experts following are the main reasons that are rerating a demand for gold and silver -

• Rising Global Inflation - With inflation hitting multi-decade highs this year, investors have started to reconsider gold as an inflation hedge, and some analysts have boosted their near-term forecasts on the back of rising prices.
• Asset Purchase - Fed policymakers look likely to accelerate the wind-down of their asset purchases when they meet later this month as they respond to a tightening labour market and move to open the door to earlier rate hikes than they had projected. So, the gold and silver price may further scale northward if the Omicron virus cases continue to rise further for a longer time, giving a sigh of relief to the gold dealers in India.
  Gold prices held steady on Monday as market participants weighed the prospect of a faster ending to pandemic-era asset purchases by the U.S. Federal Reserve after data suggested the labour market was rapidly tightening.
• Data - The U.S. employment growth slowed considerably in November, but the unemployment rate plunged to a 21-month low of 4.2%. After a turbulent week in gold and the U.S. equities, the markets were hit with a mixed employment report from November. Despite the big miss in the headline number, the details were quite optimistic. The latest data showed the U.S. economy only adding 210,000 jobs last month versus the expected 535,000.
• Interest Rates - Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of non-interest bearing gold.
• Economic Collapse - The IMF is warning of “economic collapse”, which should get headlines. Not because the IMF have any kind of track record of being timely or right about anything, but because the Fund so rarely says anything negative for fear of being seen as precipitating the crises which the policies it imposes always end up creating anyway.
• Omicron Virus - As fears mount over the newly identified coronavirus variant - Omicron, governments all over the world are scrambling to protect their citizens from a potential outbreak. The new mutation, being potentially more transmissible, was first discovered in South Africa and has since been detected in Australia, the United Kingdom, Germany, Israel, Italy, the Czech Republic, and Hong Kong.

Many events are happening around the world, and many more are to come. Of these, the ones that need to be closely watched -

• The U.S. inflation data on 10th December.
• FED FOMC interest rate decision on 15th December.
• An RRR cut from China. China Securities Daily says a cut could come as soon as this month.
• K. ministers announce new COVID-19 restrictions for travellers entering the U.K.
• Biden and Putin to have a phone call this Tuesday (one for the diary).
• Japan PM Kishida says to shorten the waiting period between vaccine and booster shot.
• Swiss National Bank (SNB) vice-chairman Zurbrügg to step down at the end of July 2022.
• The U.S. to fast-track revamped vaccine in the battle against omicron.
• Germany October factory orders -6.9% vs. -0.5% m/m expected.

As these uncertainties continue to grip the markets, will gold be able to find its safe-haven appeal once again?