Gold’s Mid-Year Outlook

Since April, gold has confronted headwinds as aggressive interest rate hikes from the Federal Reserve have driven up the value of the U.S. dollar.

But World Gold Council analysts believe gold has already absorbed the brunt of the rate hikes, arguing “many of these hawkish policy expectations are priced in.”  Indeed, history shows Gold typically underperforms early in Federal Reserve policy tightening cycles, but then outperforms as the Fed continues to lift interest rates.

Meanwhile, other factors may weigh in gold’s favor in the coming months.

  • Tight labor markets are maintaining upward pressure on inflation. 
  • The war in Ukraine is crimping energy supplies, further contributing to global inflation.
  • Geopolitical risk remains very high, as there is little prospect for a resolution of the Russia-Ukraine war. Russia is unlikely to back down, particularly now that Sweden and Finland are headed for NATO membership. This latest development raises the risks of a wider military conflict with Russia.
  • Stocks and bonds remain exceedingly volatile, given the rising interest rate environment that is slowing economies, and raising the very real possibility that the U.S. and Europe will fall into recession.  

Given the high level of risk and uncertainty, along with the recent dip in the price of precious metals, it makes sense for prudent investors to hold positions in gold as a hedge against further stock and bond market declines.