In the first quarter of 2022, the gold market saw its biggest rise since the third quarter of 2020, with gold prices up more than 6 per cent and spot prices trading around $1938 an ounce. This is an impressive turning point for precious metals, with gold falling 3.7 per cent in 2021, its worst year since 2015. The surge was evident when gold hit an all-time high of well above $2000 an ounce in early March.
Demand for the safe-haven metal surged after Russia invaded Ukraine. Geopolitical uncertainty, coupled with higher inflation, has triggered a new round of capital inflows into the sector. In addition, signs of recession on the yield curve also boosted gold's investment outlook, with 2-year and 10-year spreads reversing briefly in March.
"as long as substantial progress can be made in cease-fire negotiations and easing the situation, safe-haven funds are likely to support gold prices against a backdrop of growing assertiveness from the Fed," said TD Securities strategist. "
Gold prices rose again on the last trading day of the quarter after Russian President Vladimir Putin threatened to stop gas exports if unfriendly countries refused to pay in roubles. In response, gold gave up all its intraday losses, rising another $10 or so.
"Putin puts Europe in a difficult position and increases the risk of greater price pressures," said Edward Moya, a senior market analyst at OANDA. Gold will continue to attract media attention and is expected to rise again as Russia's latest move on gas contracts shows that a breakthrough in peace talks seems a long way off. Gold will find the main resistance at $1970, but if this is not a big obstacle, there could be a clear path to $2000. "
The outlook for gold remains optimistic for the rest of the year, but Bloomberg Intelligence recommends combining gold with bitcoin to get the best returns.
Mike McGlone, senior commodities strategist at Bloomberg Intelligence, said: "the possibility of economic collapse in Russia, the high probability of recession in Europe and China, and the same rising probability in the United States (as shown in the reverse yield curve) could boost gold's performance relative to most assets for a long time of the year."
Looking forward to the second quarter, the war in Ukraine will still be the main theme, but the focus will turn to how the Fed fights inflation, and the market does not rule out the possibility that the Fed will raise interest rates by 50 basis points twice in May and June. Markets are keeping a close eye on the minutes of the March meeting of the Federal Open Market Committee, which is scheduled to be released on Wednesday.
