As the middle of 2022 approaches, the gold market is beginning to shift. The big question is in what direction. After more than a year of a worldwide pandemic, the famous yellow metal has been hard to predict. The best way to gauge the future is to study the recent past, particularly price movements.
For traders, the focus should be on the current state of the gold market and the potential opportunities at hand. The thumbnail adage about the metal is that it usually performs well when more traditional securities lag. The huge caveat that goes with that truism is that it’s just not always so. If you’re interested in trading the world’s most popular precious metal this year, here are the current conditions to watch. With vigilance and a strong dose of patience, it’s possible to find some opportunities that would otherwise go unnoticed.
The Commodity Effect
Anyone who takes part in gold trading knows about the commodity effect when hard assets outperform intangible ones during times of intense uncertainty. It’s human nature to want to acquire actual physical things, like precious metals and barrels of oil when the stock market is tanking amid global crises. History bears out the effect in times of war, major catastrophes, pandemics, economic meltdowns, etc. But so far, this year at least, the famous precious metal has not responded in its usual way.
In fact, prices have done a roller coaster dance during the past six months. One ounce of the shiny yellow stuff was going for $1,850 near the end of November 2021. Between then and now, it rose to a staggering height of $2,050 and then proceeded to fall right back to the $2,050 level, as if the war in Ukraine, global inflation, and a worldwide supply chain crisis were no more. What’s going on with the golden asset, and why has it not risen significantly after one of the largest stock market falls in history?
The Stock Market
From late March 2022, most of the major international securities indices have taken nose-dives, but against common wisdom, the precious metal sector, which includes silver, platinum, palladium, and gold, has not responded with higher prices. So far, the safe haven effect has not materialized. Does that mean it never will? No, and if you look at history, the prized commodities often need time to kick into high gear after traditional markets perform poorly. What’s the opportunity for investors? Watch precious metal prices for a slow climb. If that happens, it could mean confirmation of a slow, long-term price increase. But, like everything else in the world of global trading, it’s impossible to predict what direction the price charts will go.
Precious metal enthusiasts need to keep a close eye on the cryptocurrency markets, particularly the price of bitcoin. The reasons are numerous and complex, but it’s relevant that many investors view crypto as a new safe haven, or at least an alternate investment vehicle when stocks tumble. However, the recent fall of BTC (bitcoin) from $59,000 to $30,000 in the past six months is instructive. In some ways, the decline of crypto has followed and magnified the losses in the stock market. The equities seemed to fall more steadily than cryptocurrency, but that’s the nature of the alt-coin universe. Even with Litecoin estimated to be the next big thing
One theory is that historically, all the precious metals have a tendency to rise when the global equity indices decline in value. But there’s often a delayed reaction. Add in the fact that crypto has lost nearly half its total worth in less than a year, and the yellow metal could be poised to move upward in the near future. It would be almost a scientific fluke for history’s most prized safe haven asset to follow suit with both equities and bitcoin. Again, it’s only a theory. Gold’s price could stay parked in the $1800-$1,900 range forever.
A number of precious metal enthusiasts prefer to follow the annual up-and-down cycle that’s been historically established. While it doesn’t work every year, there are several times when it can make sense to buy or sell. For 2022, especially after gold’s apparent slow reaction, the mid-June buying season could be a trigger for rising prices. Based on 47 years of data, the best months to buy the yellow metal are the first few weeks of the year, all of March, the first two weeks of April, and from the middle of June to the first week of July.
Whether your plan is to buy precious metals as a way to hedge inflation or for any other reason, the annual timing chart can come in handy as an adjunct to whatever other theory you prefer. Some investors purchase bullion and store it in safe deposit boxes at their local banks. Others gain exposure to the precious commodity via ETFs (exchange traded funds), ETCs (exchange traded commodities), or by acquiring shares of mining companies.
Another historical fact metals traders can work with is the history of political elections in places like the UK and the US. With what could be a huge earthquake of legislative shifts coming up in November, the US House and Senate could switch to being Republican controlled. If that happens, as political pundits are predicting, precious metals markets could erupt. A divided government with a Democrat president and Republican congress often spells stalemate, inefficiency, and troubled stock markets. It’s possible that a seismic change in US politics could be the match that lights gold’s potential rise from well below the $2,000 level to a point far above it. What’s the strategy for precious metal aficionados?
Stay in cash until the dust settles in early November after all the congressional votes are counted, and it’s clear what the last two years of the current administration will look like. Note that after the past three US presidential elections, the price of gold rose significantly immediately after a winner was announced. Some contend that metal traders like to see major political uncertainties resolved, which is always the case immediately after a round of national voting.