NEW DELHI: The year 2021 may have led to the emergence of pent-up demand for gold, but it will reach pre-pandemic levels this year, helped by higher savings, increased mobility and prices widely stable, asset management firm Quantum Mutual Fund said in a report.
International gold prices in January were caught between searing price pressures and a hawkish US Federal Reserve, ending the month down 1.5% at $1,790 an ounce.
According to Chirag Mehta, senior fund manager-alternative investments at Quantum Mutual Fund, inflation, not covid-19, appears to be the biggest threat to the global economy.
A resurgence in infections is expected to weigh on consumer spending and growth. On the other hand, China continues to follow a zero covid-19 policy which weighs on its growth, which slowed to 4% in the fourth quarter against a rise of 4.9% in the third quarter.
“Meanwhile, prices in the United States are not just high, they are high and continuing to rise with the December 2021 CPI hitting a four-decade high of 7.1%. , which excludes food and energy prices, hit an almost 30-year high of 5.5%.This means that inflation is deeply rooted in the economy and is not simply caused by the rising energy prices,” Mehta said.
January brought the Federal Reserve’s most hawkish press conference since 2018, when the U.S. central bank last attempted to tighten or shrink the balance sheet as interest rates rose.
The fund house believes this should spur interest in portfolio diversifiers like gold, especially as the Fed should have a higher tolerance for the stock market downside as inflation spins out of control.
Additionally, the leading cryptocurrency, bitcoin, is down 50% from its all-time high in November 2021 as risky assets weaken. “This kind of volatility is nothing new for this asset class, leading investors to question its role as a portfolio diversifier and its positioning as a replacement for gold,” Mehta said.
In other commodity markets, oil prices are boiling, hitting $90 a barrel for the first time in seven years, spurred by heightened geopolitical tensions in Eastern Europe and the Middle East that have fear further disruption in an already undersupplied market.
The expert believes that this will also inflate India’s import bill, which will put pressure on the rupee, which is positive for gold prices in the domestic market.
Notably, SPDR Gold Shares, the largest gold-backed exchange-traded fund (ETF), recorded its largest daily net inflow of $1.63 billion in January since its listing in 2004. indicating investor interest in gold.
“Even though the Fed seems more hawkish every day and covid-19 is most likely behind us, demand for the yellow metal is supported by higher inflation, market volatility, US-Russian tensions over the Ukraine and the decline of bitcoin”, Mehta mentioned.
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