Why aren’t ASX gold shares performing better in these uncertain times?

Should gold be shining brighter in 2022?

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Key points

  • On paper, 2022 should be a perfect year for investing in gold and ASX gold shares.
  • There is currently plenty of confusion about the outlook for the gold price, one expert says
  • While we have seen some muted gains in this sector, it hasn't set anything on fire

Gold as an investment can be many things to many people. But the yellow metal’s most ardent enthusiasts will tell you that gold’s most valuable trait is its resilient nature.

Gold, and ASX gold shares by extension, are often described as inflation hedges, protection against uncertainty and even ‘real’ money.

These characteristics aren’t just confined to owning physical bullion, either. Investors often gravitate towards the companies that mine it, seeing as they benefit from gold’s underlying strengths, too.

So if gold, and ASX gold shares, are the ultimate safe-haven assets, why aren’t they performing better?

On paper, 2022 thus far looks to be a perfect year for rocketing gold prices. We have buckets of geopolitical instability, exemplified by the tragic war in Ukraine and ongoing tensions with China. We have economic uncertainty as central banks worldwide move to tighten up interest rates. And we have inflation at levels unseen for decades across many of the world’s advanced economies.

And yet many ASX gold shares have been muted in their performance over the year so far.

Take a large ASX 200 miner like Northern Star Resources Ltd (ASX: NST), for example. Since the start of the year, Northern Star shares have risen by 4.35%. Nothing to turn your nose up against. But arguably nothing to write home about either.

Other ASX gold shares have fared worse. Take Gold Road Resources Ltd (ASX: GOR). This miner has gone backwards by around 2.2% over 2022.

ASX expert: Patience with gold

So what’s going on with gold? Well, let’s see what one investing expert reckons. Chris Watling of Longview Economics recently penned an opinion on this matter at Livewire. Here’s some of what he said on gold right now:

There is currently plenty of confusion about the outlook for the gold price…

Theoretically, in [this] environment, gold should hold its purchasing power and perform well. Instead, the price has gone nowhere for the past two years (broadly speaking). It’s therefore not serving as an inflation hedge, nor an ‘alternative’ to fiat money.

Watling said safe-haven buying on the Russian invasion was “short-lived and, instead of a breakout above the 2020 high, the price so far looks like it’s made a ‘double top…” He added:

We would argue, though, that gold has been remarkably resilient… while there’s strong evidence that gold is an inflation hedge over long periods of time, short-term price direction is determined by other factors…

Our central view is that it’s the latter, i.e. real yields, Fed rate expectations, and the dollar are likely to ‘top out’ and move lower in the near term (over the next few months). If that’s correct, then recent headwinds for the gold price should become tailwinds, with gold likely to break above its key resistance level (i.e. the ‘double top’ high of $2,077/oz).

So that’s how one investing expert is viewing gold right now. The precious metal has many advocates as well as detractors. But gold’s allure will no doubt continue to attract the attention of some investors.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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