As VanEck Portfolio Manager Joe Foster notes, for gold last year was a lot less disappointing than traders might have one believe. One of the best things about long-term investment in sound assets is that there is no urgent need for outperformance. And while we didn’t notch a new all-time high gold price, we got plenty of solid footing and a stage for gold to continue its climb.

Gold’s price trend in context

Perhaps the most important takeaway is that gold’s price averaged $1,250 from 2013 and 2019. In a little over a month, it will be two years since the market crash which redefined the word uncertainty. Despite a somewhat steep fall from its all-time high, gold’s price since the crash has averaged $1,817. That’s a 44% increase based on average prices. We could argue that gold’s price should be higher, given the macroeconomic conditions and ongoing uncertainty, but that’s just speculation.

The fact is that gold’s average price surged since the Covid crash.

Foster notes that gold is at historically high levels even after a year of many factors working against it.

The dollar’s effect on gold’s price

Despite a tidal wave of multi-trillion-dollar stimulus printed in the last two years, the U.S. dollar index ended 2021 up 6.4%. And perhaps because of this stimulus, the year was marked by absolutely manic risk-on investment. Equities, real estate, crypto, junk bonds, leveraged loans, SPACs, the rare whiskey index and cartoon monkey images all skyrocketed in price. This is the so-called “everything bubble,” brought to you by Federal Reserve Chairman Jerome Powell with a combination of massive money-printing and near-zero interest rates that pushed investors desperate for yield into some of the strangest corners of the market (and even invented new ones).

Well, that’s one consequence of the Fed’s actions. The other? Levels of inflation across the board that dwarf anything we’ve seen in the last 40 years. We have to go back to 1984, the tail-end of the Carter-era stagflation episode, to see anything like it.

Here’s what gold has going for it

With gold showing exceptional resilience even in such an inflationary environment, we’d do well to go over some of the things that are working in the metal’s favor. And there’s no untying them from inflation.

Foster urges anyone who thinks that gold missed an inflationary period’s upside to reconsider. There have only been two such stretches in the last 50 years, one in the 1970s and the other between 2003 and 2008. We all know what happened to gold prices after each. Unsurprisingly, both were very much characterized by the same kind of not taking inflation seriously until we have to sentiment that we’re seeing from the Fed today.

Foster thinks we’re witnessing the start of a wage/price spiral that will keep driving prices up (though arguably it’s already well underway). S&P CoreLogic Case-Shiller National Home Price Index rose 18.8% in November (latest figures) year over year. The priciest housing market in history coincides with a lack of job creation, leaving the U.S. with 21 million fewer people employed than before the Covid crash.

Foster points out that inflation-adjusted, average hourly earnings have declined by 2.7% so far this year. In an example of inflation psychology setting in, unions are negotiating to get cost-of-living adjustments (COLAs) written into their wage contracts. All this, and we’re expecting yet another year of spikes in prices of basic goods amid ongoing supply chain disruptions.

What about the Fed’s plan to raise interest rates?

As for policy, the federal government wants to print and spend more money. The Federal Reserve is taking it away. At least, they’ve threatened to take it away…

UBS analyzed the Fed’s previous three rate hiking schedules, those in 1999, 2004 and 2015. As was the case last year, gold pulled back 5%-10% six months before a hike and then gained 10%-20% after each initial hike.

It goes without saying that the fourth hiking schedule could make way for gains beyond even those. So even the most long-term gold investor should find plenty of good news for gold’s price in the year ahead.