The gold market is seeing some solid buying on New Year’s eve, the final trading day of the year. The yellow metal is putting in a good showing today to cap off the end of a losing year in which the metal declined by several percentage points for its worst annual decline since it lost 10% in 2015.
The yellow metal today is likely benefitting from some end of year position squaring and possibly some short covering. The metal is higher despite some weakness in crude oil today and some steadiness in the Dollar Index. Yields on the benchmark 10-year treasury are at 1.51%. The 10-year yield notched a .6% gain for 2021, the largest increase seen in eight years. Although yields have quieted down some in recent weeks, rising yields could remain a source of market tension in 2022 and could weigh on gold prices as the year gets going.
As 2021 winds down today, investors will turn their attention to the upcoming year ahead. Numerous issues remain that could affect the gold market, and volatility could see an upswing as the Fed gets ready to tighten policy. The two biggest issues being faced by the gold market for 2022 are monetary policy and inflation.
Inflation has been running hotter in recent months. Despite the Fed’s earlier assertions that inflation was “transitory” in nature, Fed officials have now seemed to acknowledge that rising price pressures are a problem and could be here to stay. It is these rising prices that have likely been the primary factor in the Fed’s decision to taper its monthly security purchases faster than anticipated and to pencil in three rate hikes for next year. If inflation accelerates further, the Fed could find itself forced to raise rates further and/or faster, and that could potentially upset markets a great deal. Any surprise action by the Federal Reserve could set the stage for a stock market reversal or a major sell-off.
Equity markets could also hold some keys to gold’s fortunes in the year ahead. If stocks do reverse course and begin trending lower, it could benefit gold and other perceived safe haven asset classes. A major equity sell-off could have the same effect, although investors holding gold could be forced to liquidate those positions in order to raise cash to meet equity margin calls.
Whether it is up or down, 2022 could be a breakout year for gold. The yellow metal has been range bound for several months now, with neither the bulls nor the bears having enough ammunition to stage a sustainable breakout or breakdown. That could change in the year ahead, however, as investors become more in tune with the Fed and its decisions on policy. For
the time being, the bulls will look to take out resistance in the $1840 area while the bears will look for declines to the $1750 level.