Consumer prices rising amid hot inflation could hold down economic growth, and a less hawkish Federal Reserve could push gold prices higher.

Gold prices have been range-bound in a $1,800 per ounce holding pattern that goes all the way back to summer of last year. With the Fed set to raise interest rates in 2022, that could push the dollar higher and set gold back even further, but things could change.

Ambition may overcome the reality, and slower economic growth in 2022 could tell the Fed to scale back on its aggressive interest rate-raising policy. Weak economic data from high unemployment levels and growing government debt could be just what gold needs to spark a rally.

“The possibility of weakish economic data in the aftermath of the Omicron variant and somewhat less inflationary pressure manifesting, along with the lack of strict inflation targeting, are all factors likely to keep the US central bank from pulling the trigger on a hike in March, as the consensus increasingly expects,” said Bart Melek, head of commodity strategy at TD Securities.

Analytics show that the Fed could raise rates four times this year, pushing the greenback higher as it rallied to end 2021. Gold prices fell 4% in 2021 as investors were re-invigorated to head back into equities as the economy continued to recover from 2020’s pandemic-ridden year.

Melek foresees that gold prices could possibly hit $1,850 in the short-term horizon. That’s possible if the Fed is essentially all talk and less hawk.

“[Federal Reserve Chair] Jerome Powell is no hawk, and there is a long way to go to operate at full capacity. Policymakers will continue to make policy in response to the numbers,” Melek said. “Any rate increases will not turn policy restrictive for a while yet.”

Getting Physical Gold Exposure

Investors looking for ways to own gold outside of traditional coins or bars can opt for gold funds. One such fund to consider is the Sprott Physical Gold Trust (PHYS), which gives investors easy access to gold exposure with the option to convert their ownership shares to physical gold.

“The Trusts’ precious metals are fully allocated which provides the Trusts with direct beneficial ownership,” the Sprott product website notes. “Unlike other bullion funds, the Trusts do not have an unallocated account that is used to facilitate transfers of bullion between financial institutions that act as authorized participants.”

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