InvestorQ : Why did gold give negative returns in the year 2021?
Ria Jain made post

Why did gold give negative returns in the year 2021?

Dia Deshpande answered.
4 months ago

You are right that in dollar terms, gold gave negative returns of -4.2% in the year 2021. Of course, rupee returns were still lower to the tune of around -8% due to depreciation in the rupee. Here is what resulted in lower gold prices in the year 2021.

· After 3 years of outperformance, some correction was on the cards, so it was largely mean reversion in gold happening. But there were fundamental reasons too.

· In a way, the end of COVID scare brought about greater risk appetite among investors and make a case for riskier assets like equity.

· Gold normally does well in times of uncertainty. However, 2021 was the return of certainty and growth to the global economies, which depresses gold demand.

· An important reason was the spike in bond yields. This hiked the opportunity cost of holding gold, thus making other riskier assets and even bonds more attractive.

· Stronger dollar also ended up weakening gold prices since gold is globally benchmarked against the dollar. Fed hawkishness made the dollar stronger and gold weaker.