Gold saw a pause this year. But will it shine in 2022?

Gold saw a pause in 2021 after a massive rally of five years in which prices more than doubled from Rs 25000 to Rs 56000. Unlike its early Covid performance, the yellow metal has given negative returns in 2021 ranging between -3 per cent and -5 per cent.

"In 2021 aggressive vaccination drive, low-interest rate, tapering talk, reopening of the world economy, euphoria in equity market, and rising craze for cryptos stole the shine of gold to some extent. Euphoria in equity market across the world, which enjoyed rally on every correction kept this metal on the back foot too. However, the fall was slow as slowdown in China and resurgence in Covid in many countries, etc kept the fear factors on; especially in the second half," says Vandana Bharti, Commodity Head, Research, SMC Global Securities Ltd.

Gold plays an important role in your portfolio as it is considered as a good hedge against high inflation. It has an inverse relationship with interest rates and, generally, when interest rates rise gold prices decline. With the US Federal reserve signaling three rates hikes in 2022 will the yellow metal might lose its sheen as an investment avenue? Well, experts have a mixed opinion on this.

"Rising interest rates in 2022 could dampen gold's appeal so would not expect much better. I personally don't think of gold as much of an investment but if someone would like to treat it as a hedge or safe bet in their portfolio, then timing should not matter either way," says Aditi Sholapurkar is co-founder of SALT, a financial services app tailored for women.

The expert says gold is a long term investment and one should be ready to buy at dips to average out the cost.  "If you have long-term vision then you can buy gold at any time. Inflation is a matter of concern and it is likely to be there in 2022 as well. GDP is positive but we have seen a downward revision recently. The global economy is projected to grow 5.9 percent in 2021 and 4.9 percent in 2022. Equity is overvalued; any correction will attract buying in gold. Overall, one should buy at dip in gold. On MCX, it can see support near 40000-42000 whereas resistance is near 54000-56000," says Bharti.

Standard Chartered Wealth India report states, "We continue to believe that gold plays an important role in diversified investment allocations driven by a variety of factors. First, history suggests gold does well in periods of high inflation. If inflation proves to be higher, or longer-lasting, than our expectations, gold can act as a portfolio hedge. Second, we expect higher bouts of equity market volatility in 2022 given the transition to mid-cycle. This can be partially mitigated by gold. Lastly, our view of modest USD weakness should eventually offer a pillar of longer-term support for gold."

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