Gold has traditionally been considered an accurate indicator of the economic trend line across the world. Being considered the safest bet against inflation, investments in gold have soared as and when the world is gripped by rising inflation rates.
Uncertainty is the name of the game and historically gold had certainly been one of the preferred tools to mitigate risks arising out of rising inflation. This historical trend of gold being a preferred hedge to stay ahead of inflation is losing its charm in 2022.
The main reason for such a paradigm shift in Gold’s ability to mitigate risks arising out of the current waves of inflation across the world is the availability of options with better interest rates for the people to choose from. Hovering around 8.5%, the inflation rate in the United States (US) is nearing the 40-year high mark, forcing the Federal Government to continue to increase interest rates in an anticipation of taming inflation. The US Federal Government also sees increasing interest rates as a preferred measure to counter inflation, until there is a check on inflation rates. At the same time, the US dollar continues to strengthen and put pressure on the Gold Prices.
In India, which is on the opposite side of the globe, the inflation rate is nearing 7.79%. As of May 2022, the price of ten grams of Gold is INR 51,000. With the historically highest levels of inflation registered, the current price of Gold when compared to the May 2021 price of INR 46,000, the upwards spike in Gold’s price seems insignificant and hence remains to stay an unattractive proposition for those looking to minimize the effects of inflation.
The future roadmap for Gold depends upon the ecosystem it trades in. It needs to be seen whether Gold shall be able to get its crown back and shine once again with growth rates higher than the inflation when interest rates across the world start to stabilize and allow people some breath of life.
