Surging inflation may add some short-term shine to gold as investors look to hedge against rising prices, but the glow may quickly fade, with inflation concerns expected to dim in 2022, analysts say.

With inflation hitting multi-decade highs this year, investors have started to reconsider gold as an inflation hedge, and some analysts have boosted their near-term forecasts on the back of rising prices. But the supply shocks and shipping bottlenecks that drove up prices are expected to fade in 2022.

"Over the last 20 years, gold prices have risen sharply, while inflation has been low — until now," CPM Group Managing Director Jeffrey Christian said in an interview. But "we think that a year from now, people are going to be looking at between 2% and 3% inflation in the U.S. And they're going to be saying: 'Boy, to be worried about inflation, that was like pet rocks or go-go boots'."

Inflation had been running at relatively muted levels since the early 1980s, and investor concerns over it have not been a major factor driving gold prices in decades, Christian said. Instead, growing debt, negative interest rates and market instability, among other issues, have been the key factors propelling demand and the price of gold since the early 2000s.

Gold climbed from under $300 an ounce in the early 2000s to over $2,000/oz last year and has since hovered around $1,800/oz. Meanwhile, Christian noted, the correlation between inflation and gold has been low in the past couple of decades, and at times negative, though it may be making a tentative return.

"Looking ahead, we see risks of further strength in [the consumer price index] in early 2022, which could stoke even stronger demand for gold," UBS analysts said in a Nov. 12 note, raising their gold price forecast for the end of March next year to $1,800/oz from $1,700/oz.

Likewise, ANZ commodity strategists said in a Nov. 16 research report that inflation expectations are giving the price of gold a boost. They noted that the price of gold broke their $1,850/oz price target, though it has since pulled back to under $1,800/oz.

While analysts underscored the growing importance of inflation in supporting gold prices in the second half of 2021, they also sounded a note of caution over its effect in 2022.

"A moderation in inflation expectations, alongside higher nominal rates, should see U.S. real rates push higher, eventually, and weigh on gold," the UBS analysts said. The analysts project a decline in the price of gold through 2022, with an end-of-year forecast of $1,650/oz.

Christian said broader concerns over the health of the global economy would remain a more dominant factor for gold, with worries over inflation receding in 2022.

"While it's growing in importance, it's still far less important in my mind, and in the minds of the investors I talk to, than economic instability," he said.