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Commodities Corner: Here are some of the challenges gold investors face in the second half of 2022

Gold investors face a “challenging” market environment in the second half of the year after an essentially flat performance for the precious metal in the first six months of 2022, the World Gold Council said in its mid-year outlook report released Thursday.

Investors will need to weigh pressure from higher interest rates and potential strength in the U.S. dollar against support from high inflation and market volatility, the report said.

The World Gold Council said gold prices ended the first half of this year up 0.6%, closing at $1,817 an ounce, based on the LBMA Gold Price PM benchmark, which is administered by the ICE Benchmark Administration. Most-active gold futures traded on Comex

however, ended about 1.2% lower for the first six months of 2022, settling at $1,807.30 on June 30.

“Gold’s flat [year-to-date] performance may seem dull, but gold was nonetheless one of the best-performing assets during H1,” the World Gold Council report said. “It not only delivered positive returns, but it did so with below-average volatility,” allowing investors to mitigate losses during this volatile period.

Global gold exchange-traded funds saw a second straight month of outflows — 28 metric tons, or $1.7 billion — in June, though global holdings of gold ETFs were up 6% year to date, a separate report from the group, also released Thursday, showed.

Other major assets, such as equities and bonds, saw their worst performance in decades during the first half, Juan Carlos Artigas, the gold council’s global head of research, told MarketWatch.

Investors will continue to face “significant” challenges in the second half of the year, including rising interest rates among major central banks — which have had a big impact on financial markets, including gold, the World Gold Council report said. Higher interest rates can dull demand for the precious metal, which pays no interest.

Still, the World Gold Council believes inflation will remain high, and gold has historically performed well amid high inflation.

“ “Both investors and gold will continue walking the highwire between converging and complex dynamics.””

— Juan Carlos Artigas, World Gold Council

“Both investors and gold will continue walking the highwire between converging and complex dynamics,” Artigas said.  

“For gold, the negative impact of higher nominal interest rates and the possibility of a stronger dollar is likely to be offset by persistent inflation, market volatility driven by shifts in monetary policy and ongoing geopolitical risks,” he said. “Additionally, we believe that, as economies decelerate but stubborn inflation lingers, equities and bonds are likely to underperform, underscoring gold’s role as a key strategic hedge.”

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