Gold, inflation and divorce benefit the bulls with the biggest annual loss since 2015.

© Reuters.

Barani Krishnan may have been an overwhelming year for inflation, but it is certainly a bland year for gold, which is one of the most popular tools known to investors to hedge against price pressures.

As the U.S. and the Fed’s preferred inflation indicator—core—are both at 40-year highs, gold prices have fallen 5% year-on-year.

The most active US gold futures contract closed up 14.50 US dollars, or 0.8%, on the New York Mercantile Exchange, at 1,828.60 US dollars per ounce.

Since the beginning of this year, Comex Gold has fallen 3.6%, the first annual decline in three years, and the largest decline since 2015.

This decline also occurred after a year of outstanding gold performance in 2020, which pushed the price of gold to a historical high of more than US$2,100 per ounce, an annual increase of 22%. By the way, as the U.S. budget deficit began to hit a record Covid-19 relief expenditure record, this rebound was carried out in the context of inflation concerns.

Gold has traditionally been touted as a hedge against inflation, although this claim has weakened earlier this year because the price of gold has fallen steadily and pressure on prices has increased as the U.S. economy rebounded sharply from the coronavirus pandemic. . Usually, gold falls at the expense of the U.S. dollar and U.S. Treasury bonds, the latter of which rises due to expectations that the Fed will raise interest rates to curb inflation.

Phillip Streible, precious metals strategist at Blueline Futures in Chicago, said: “The gold inflation divorce in 2021 will definitely hurt the bulls in the field. They originally expected the theme of love between the two to continue last year.” The gold sell-off seen since the third quarter of last year, and further sell-off in 2021, the writing of this kind of break-up is imminent.”

“That being said, it does not mean that gold price inflation will not repeat itself in the coming year,” Streible added. “The Fed is unlikely to raise interest rates as many times as expected in the next year. If employment slows down again for any reason, gold hedging may once again become a theme. This is how gold rebounded from this year’s low of below $1,700 to 2021. One of the reasons why it is above $1,800.”

The Federal Reserve has announced a timetable for accelerating the end of stimulus measures during the pandemic and intends to raise interest rates as early as March, which is the first time in two years since the Covid-19 outbreak in March 2020.

The Fed has stated that it may raise interest rates up to three times in 2022, but this will depend on keeping inflation at 2% per year and keeping the ideal unemployment rate at around 4%, which is defined as ” Maximum employment”.

After the Covid-19 outbreak, the index soared to a record high of 14.8% in April 2020, but fell back to 4.2% last month. But the consumer price index increased by 6.8% in the year to November, the highest level since 1982.

News of interest rate hikes is almost always bad for gold. But if the inflation theme remains strong, then gold may still hit new highs. This is what the bulls in the field are counting on.

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