9 investing trends to watch in 2022 Part 8

Today we continue with our top trends for 2022 as part of our ongoing series, “Our Top Nine Investing Trends to Watch in 2022”

In this series, we’ll cover our top 9 investment ideas:

1. The Great Lithium Disconnect
2. Decarbonization — green switch on
3. The future of payments
4. Quantum Computing and Moore’s Law on Steroids
5. Connected devices and memory
6. Decentralized finance—an “Amazon in 1994” moment
7. Influential “I’s”
8. Watch out for gold
9. Equities – Watch out for high valuations

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And this time we’re talking about…

Trend #8 Watch out for gold

Inflation is not bad news by and large. Rise in inflation is a potential boon for gold.

Discussions of rising inflation and impending interest rate hikes cannot fail to mention the metal with a 6,000 year history.

So… could 2022 be the year gold hits the mark?

In the latest inflation data released by the Australian Bureau of Statistics, annual CPI inflation in Australia hit 3% in the September quarter of 2021 as motor fuel hit a record high due to the surge oil prices.

It is important to note that the trimmed average inflation and the weighted median inflation recorded their first annual movements above 2% since September 2015:

Source: ABS

In the meantime, however, the price of gold has stagnated.

gold price chart

Source: S&P Global Market Intelligence

But as fears of runaway inflation grow, will defensive investors turn to gold as a safe haven in 2022?

As we have written elsewhere, one of the most widely held beliefs about gold is that it is a good hedge against inflation.

Gold has a history of maintaining its value in tough economic times.

For example, during the inflationary period of 1973 to 1979, gold outperformed commodities, real estate investment trusts, and beat inflation.

But gold’s ability to hedge inflation is not absolute.

As the chart below shows, gold has at times underperformed during periods of inflation, particularly in 1980–84 and 1988–91.

return on investment in times of high inflation

Source: CNBC

So the question is not as simple as “rising inflation = rising gold” for investors in 2022.

The nuance comes into play.

But… with current inflation rates at an all-time high, our resident gold analyst Brian Chu thinks we could be on the cusp of a gold bull market.

As Brian Chu himself put it in December 2021:

It seems that the prevailing narrative of the Federal Reserve struggling to keep inflation in check and fear of the new Omicron variant are keeping investors nervous.

Gold normally thrives in uncertainty, but the glut of liquidity in this market has turned it into something different.

I don’t believe the gold will fade, people will stop wanting it, or companies will stop mining and exploring.

In fact, I think in the years to come there will be a greater demand for it.

Just so you know, central banks are still buying gold quietly.

New came out last month from the central bank of Singapore adding to their stock for the first time since 2000. The bank bought 26.35 tonnes, bringing their total holdings to over 150 tonnes.

If there is one thing that central banks do well, it is to protect themselves from errors they do.

A little about us — Fat Tail Investment Research

While themes and trends may come and go, one thing that never goes out of fashion in the investment world is insightful analysis.

Information is the crucial ingredient of markets.

But information alone is not enough.

It’s the rational analysis of information that separates a healthy idea from a weak idea.

At Fat Tail, our editors pride themselves on providing valuable insight by applying their industry experience and knowledge.

At Fat Tail, we value differences.

Disagreement is not censored but encouraged.

And we find that our readers appreciate the range of thoughts and ideas of our editors.

At Fat Tail, we have bulls, we have bears, we have crypto advocates and gold bugs.

At the heart of it, however, we have a team dedicated to the free exchange of ideas. Reason trumps agenda here.