Gold emerges as the best-performing asset class in 2022

Historically, gold acts as a hedge against inflation and uncertainty caused by economic shocks and geopolitical tensions. Given this, gold usually does well when other asset classes struggle. For example, the yellow metal was the top performing asset in the calendar year 2020, when the breakout of the Covid-19 pandemic led to a sharp decline in stocks and commodity prices. Gold had appreciated by 25.1 per cent in 2020, as against a 13.1 per cent rise in the Sensex (in dollar terms) and a 7.2 per cent rise in the Dow Jones Industrial Average.

Gold prices, however, declined by 3.6 per cent in 2021, as an improvement in economic conditions globally and infusion of liquidity by central banks led to a rally in stock prices. Stocks are once again on the backfoot in 2022. In fact, gold prices are now up 11 per cent from its 2021 low hit in March last year.

Consumer price inflation in the United States, the world’s biggest economy, rose to a four-decade high of 7.5 per cent in January. This coupled with geopolitical tensions in Europe has led to a safe haven demand from investors.

Many analysts, however, expect a correction in gold prices in the short-run led by profit-booking by traders. The medium to long-term trend, however, remains bullish for the precious metal given rising inflation and a slowdown in economic growth in major economies.

Technically, the yellow metal faces stiff resistance at its record high of $2,027 per ounce made in 2021. Only a strong closing above this level could take it to new highs.