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Tags: gold | equity returns | inflation | geopolitical risk

Gold in a Strong Rebound Position in 2022

gold bars
(Getty Images)

By    |   Monday, 03 January 2022 01:20 PM EST

Even with inflation reaching 6.8%, investors’ interest in gold was overshadowed in 2021 by tremendous stock market returns.

It is precisely gold’s lackluster year that might attract investors back to the gold sector in 2022, Bloomberg and Forbes report.

Even with inflation reaching 6% toward the end of 2021, new investments in gold drifted downward by 6%, according to Forbes. With safe interest rates still well below 2% and inflation three times that, “people are getting worried about inflation continuing to rise faster,” Forbes reports. “Investing in gold is an age-old, inflation-protection strategy. Additionally, in times of gold popularity, gold mining company stocks can be even better performers.”

Forbes says this is due to realistic stock valuations, i.e., price-earnings ratio of around 16.5 — plus sound dividends.

Two Gold Miners to Consider

Two examples of gold mining company stocks worth considering are Newmont Corporation (NEM) and Barrick Gold Corp. (GOLD), Forbes says: “The price-earnings ratios for both are less than 16.5x, meaning earnings yields of around 6%. Additionally, both have good dividends. This combination puts them in the desirable category of contrarian value stocks with good revenues, earnings, and dividend payouts. Add to that picture the potential gains from a growing move to gold investments as inflation rises further.”

For investors who view individual stocks as too risky, a basket of gold in an exchange-traded fund (ETF) might fit the bill, according to Bloomberg: “Gold’s lackluster year may pave the way for renewed interest in exchange-traded funds in 2022 from investors seeking a hedge against growing global uncertainties.”

One gold ETF that investors might consider is SPDR Gold Shares (GLD), Bloomberg reports. Investors pulled $10.4 billion from the fund in 2021, the most since 2013, “the equivalent to about 190 tons of bullion, according to the marketing agent for the fund.”

Worries About Persistently Elevated Inflation

With investors viewing inflation as a growing risk as the world economies rebound from the pandemic, persistently elevated inflation is a growing worry.

Robin Tsui, Asia-Pacific gold strategist and sales specialist at State Street Global Advisors, tells Boomberg: “There are more investors that we talk to that are willing to go into gold as a hedge against all this uncertainty. We’re seeing geopolitical risks, high inflation, and a low-yield environment.”

Tsui goes on to say that when the U.S. Federal Reserve begins to quicken its bond purchases, this will boost the gold market. Even though this news has been priced into the market already, when the Fed increased interest rates in 2004 and 2015, gold markets “spiked,” says Tsui, who says the same outcome is possible in 2022.

He believes that gold could trade between $1,800 and $2,000 an ounce in the first quarter.

As Forbes sums it up, the bottom line is “history offers good support for investing in gold now.”

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Even with inflation reaching 6.8%, investors' interest in gold was overshadowed in 2021 by tremendous stock market returns.
gold, equity returns, inflation, geopolitical risk
Monday, 03 January 2022 01:20 PM
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