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2022 Gold Outlook: Fed Rate Hikes and Dollar Rally Impact Precious Metal's Safe Haven Status

Gold is expected to fall for the second year in 2022 as the Federal Reserve's aggressive interest rate hikes have strengthened the dollar, undermining gold's role as a safe place to store assets.

Gold Ingots on Dollar Bills
Gold Ingots on Dollar Bills

The Fed's efforts to combat inflation are expected to shape sentiment in the precious metals market in the coming year. Various factors, including Russia's invasion of Ukraine, rising inflation, COVID-19 restrictions, and slowing economic growth, contributed to a volatile year for precious metals in 2022.

At the close of the year, spot gold was trading at $1,821.50 per ounce, on track to end the year about 0.4% lower. In early 2020, during the Ukraine crisis, gold came close to reaching its all-time high of over $2,000 per ounce as countries around the world implemented lockdowns. However, the strong performance of the dollar this year has reduced demand for dollar-priced gold, which has fallen by $250 from its March peak.

"The Fed's large rate hikes in 2022 have greatly undermined gold's traditional roles as a safe haven and hedge against inflation, as it is a zero-yielding asset," explained Han Tan, Chief Market Analyst at Exinity. The clear stance on inflation by top policymakers at the U.S. central bank has caught investors off guard who had been betting on a slower pace of rate hikes.

Julius Baer says, "We believe the outlook for U.S. monetary policy should remain in the driver's seat (for gold)."

Silver and Autocatalyst Metals See Mixed 2022 Performance

While silver is set to end the year over 2% higher, at $23.87 per ounce, the possibility of a global recession poses a risk to demand for the metal, which is used both as a safe-haven asset similar to gold and in industrial applications such as solar panels, automobiles, and electronics.

Prices of platinum and palladium, used as autocatalysts in the automotive industry, were boosted by concerns about Western sanctions on major producer Russia. However, platinum has managed to maintain its gains and is on track for a more than 10% yearly increase, trading at $1,066.01 per ounce. In contrast, palladium has experienced its second consecutive annual decline, despite reaching record highs in March, and is currently trading at $1,783.35 per ounce, down nearly 6% for the year.