Atkinsons Bullion & Coins
Back to December 2021

The COVID-19 pandemic and the resulting lockdowns economies across the world have culminated in a rise in inflation and UK interest rates already, with further hikes possibly on the way during the coming year.

Could this mean a possible boost for the price of gold?

Inflation & Interest Rates Up

Gold has experienced a couple of years like never before – first rocketing to record-breaking prices due to excessively high demand during 2020, and then a rollercoaster of ups and downs during 2021. As the new omicron variant runs rife, fears of further restrictions being implemented during 2022 have only heightened economic uncertainty.

The rate of inflation in the UK has now risen to 5.1% - its highest in a decade – as reported in December, taking the Bank of England by surprise after it expected inflation to peak at 5%, but not until way off into April 2022.

With inflation already so far above its 2% target, the Bank of England have now raised interest rates from 0.1% to 0.25% - the first raise in more than three years - in order to tackle strong inflationary pressures building up in the economy.

Good News for Gold

This modest rise in interest rates could just be the beginning, as many economists believe that it is likely that they will rise again – possibly above the 0.5% forecast. And BoE governor Andrew Bailey has stated that the next two or three months could see inflation rise further, up to around 6%.

Although bad news for borrowers and devastating for the already weak economy, the interest rates rise could, however, be good news for gold.

Inflation and higher interest rates may be almost welcome for some, especially gold investors. As history tells us, in times where inflation remains high, our favourite precious metal, a tool to hedge against inflation, often pushes the price higher. Inflation has always had an extremely powerful influence over gold. As economic uncertainty grows – investors flock from stocks, bonds, and other markets back to the yellow metal.

The last time interest rates went up was in August 2018, when they reached 0.75%. It was around this time, gold started on its movement upwards.

With these reports of possible further inflation and even higher interest rates lurking around the corner, could we see gold gleaming once again for many investors looking to protect themselves from economic pressures?

We’ll be keeping a close eye on the news in 2022, and you should too.

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This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.

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