Gold exchange traded funds are about to end at their worst annual percentage decline in years.
Over 2021, the SPDR Gold Shares (NYSEArca: GLD) fell 5.5%.
Moreover, the SPDR Gold Shares was among the most hated ETFs of 2021, experiencing about $10.9 billion in net outflows, according to ETF Database data.
Despite a surge in consumer prices that hit four-decade highs in November, the traditional precious metal inflation hedge is on pace to end the year with its largest decline since 2015, the Wall Street Journal reports.
“Theoretically on paper, this should have been an exceptionally strong environment for gold prices, yet they are ending the year lower than where they started,” Chris Vecchio, senior strategist at DailyFX, told the WSJ. “I’m really hard-pressed to think that if gold prices couldn’t rally significantly in 2021, how will things look better henceforth?”
The most-actively traded gold futures have retreated about 4.7% to around $1,805.80 per troy ounce in 2021, falling back on investors’ expectations for the Federal Reserve to hike interest rates. The increased pace of monetary tightening will make yield-generating assets like bonds more attractive, whereas non-yielding hard assets like gold would lose out.
While gold has been a go-to stable store of wealth and is often used as a hedge against swings in stocks or consumer prices, the precious metal comes with no income, so it tends to struggle against more attractive alternatives like government bonds when rates rise.
The Fed has signaled that interest rates could rise three times in 2022 to cool inflation, which has helped push up the yield on the two-year Treasury to its highest levels since the early pandemic.
Wade Guenther, partner at Wilshire Phoenix, projected that gold prices will hover around $1,700 and $1,775 through most of 2022, arguing that rising rates will likely strengthen the dollar, which could weigh on gold by making it more expensive for foreign buyers.
“With interest rates, inflation and the dollar, we kind of expect returns for gold will be somewhat muted through the entirety of next year,” Guenther told the WSJ.
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