It is often assumed that gold’s price behavior is linked to investment demand, especially from financial instruments such as gold ETFs, over-the-counter contracts, or exchange-traded derivatives. This is only partly true. Shorter-term and more significant price movements do tend to respond to variables associated with these types of gold investments; for example, interest rates, inflation, exchange rates, and, more generally, flight-to-quality flows and tail risks.
Statistics also show that gold’s performance is also linked to other components of demand, such as jewelry, technology, and central banks. While these do not typically result in the large price movements associated with investment, they help underpin gold price performance by either providing support or creating headwinds.
For the remaining of 2022, gold prices will likely be subject to:
- higher nominal interest rates
- high, persistent inflation
- a potentially stronger dollar
- development of the Ukrainian/Russian crisis
- robust demand from other sectors such as central banks and jewelry