Gold managed a small rally during the final days of 2021 thereby cutting the annual loss to around 3.6%, and while being the worst decline since 2015, it was actually a respectable year for the yellow metal. Not least considering the headwinds from rising interest rate expectations and the dollar which against a wide basket of currencies rose by 5%, its best year since 2015.
Gold is often used by fund managers as a protection against the unexpected, whether it is macroeconomic or geopolitical developments. The wall of money provided by governments and central banks following the first wave of the Covid-19 outbreak helped reduce macroeconomic risks while sending the stock market sharply higher resulting in what my colleague called a mindboggling year for equities.
Responding to these developments, total holdings in exchange-traded funds backed by bullion saw a steady decline throughout the year as investors, including some of the largest real money asset managers, cut their holdings by 287 tons, thereby reversing parts of the 750 tons that was added in 2020 during the first year of the pandemic.
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