It's been a tough year for most asset classes in 2022. Shares, property, bonds… you name it, it's probably down. Unfortunately, this also extends to gold and by extension, ASX gold shares.
At the start of this year, gold was priced at around US$1,830 an ounce.
Today, it is trading at US$1,643.
This obviously hasn't done the ASX miners that dig up the yellow metal any favours. Take the S&P/ASX 200 Index (ASX: XJO)'s largest gold miner, Newcrest Mining Ltd (ASX: NCM). Year to date, the Newcrest Mining share price has fallen by a depressing 29%.
That is up the extreme end. But you'd still be hard-pressed to find a gold miner on the ASX that has glittered in 2022. Gold Road Resources Ltd (ASX: GOR) shares are down 16% year to date. The Northern Star Resources Ltd (ASX: NST) share price has lost around 7%.
So what's gone so wrong for gold? Isn't this precious metal supposed to be a hedge against inflation, market volatility and general uncertainty, all of which 2022 has delivered in spades?
Well, according to an article in The Australian today, a strong US dollar and rising interest rates are mostly to blame.
Gold's appeal falls when interest rates rise
When interest rates rise, it reduces the appeal of holding gold as an investment since holding bullion gives off no yield. As such, many investors would rather invest in dividend-paying shares or term deposits. That's given the cash flow yield one can enjoy when rates are rising.
The US dollar also has a big influence. The yellow metal is usually priced in US dollars for international transactions. This means that when the dollar rises in value against other currencies, the value of gold in US dollar terms declines.
And since we have seen a surging US dollar over the year thus far, this is definitely a factor at play as well.
So are there better times ahead for gold? Well, the report quotes Phil Kosmala, managing partner at investment consulting firm Taiber Kosmala.
Kosmala is reportedly waiting for signs that the US economy is heading for a recession before he buys gold. This is because these periods are when the precious metal's status as a safe haven really shines through, according to Kosmala.
He is also waiting to see the US dollar retreat from its recent highs and for interest rates to start falling:
We'd like to see all three of those for us to start looking more favourably upon gold.
