Three ‘F’ Words to Sum up 2022

To put it mildly, this year has been wrought with market volatility.

As we say farewell to 2022, let's review 3 significant themes—each one a F—that shook significant assets during the last 12 months:

Fed

The most active Federal Reserve, the US central bank, that we have seen since the 1980s, has been the main mover of the world markets in 2022.

Remember that raising interest rates is a central bank's main tool for reducing inflation. After all, US inflation was at its highest rate in 40 years.

More specifically, the pace at which the Fed increased interest rates this year took markets off surprise (to be fair, many Fed officials themselves didn't believe they'd have to raise rates so much so soon either).

Markets only anticipated a maximum 75 basis point increase in US interest rates for the whole year of 2022 at this time last year.

Twelve months later, the benchmark interest rate in the US has risen by 425 basis points from near-zero to 4.5%, which is the highest level since 2007!

US interest rates rising at that pace and the US currency strengthening in tandem turned out to be gold's number one opponent in 2022.

Despite gold's historical functions as: The market's preoccupation on rising US interest rates, combined with the fact that gold is a zero-yielding asset (does not pay interest/generate income for investors who hang on to this asset) to push down prices

A strategy to safeguard investors' money against the damaging consequences of soaring inflation is to use an inflation hedge.

A safe haven is a means to safeguard investors' capital during periods of extreme ambiguity.

Thus, from its high during the Russian invasion to its lowest levels since 2020, bullion was pulled down by as much as 22%.

To be fair, spot gold has made a tremendous comeback since the beginning of November on the belief that the "worst" of the Fed rate rises is behind us.