Posted 16th Juni 2023

Investor's Guide to Gold in 2023

Carlo Alberto De Casa Profile Image
Carlo Alberto De Casa

What are the main market drivers for gold in 2023? Why is investing in gold still a crucial asset for investors?

In this investor’s guide, we look at the current situation of gold investments in the context of the wider economy. We then consider the potential advantages of gold investing as part of a diversified portfolio in 2023.

We also explain the difference between:

  • Physical gold
  • Paper gold
  • Digitalized forms of gold

What happened to the price of gold in 2022?

Gold as an investment had a steady 2022. Bullion started and finished the year in the region of $1,800 per ounce. Within that time, it jumped above the psychological threshold of $2,000 and fell as low as $1,600.

To analyze gold’s movements last year in more depth, we can divide it into three distinct segments.

In the first few months of the year, the price skyrocketed to a new record of $2,075. Geopolitics was a significant factor here. Gold went up with the pre-invasion tensions between Russia and Ukraine. It went further north when the invasion happened.

The rate of the rise in the gold price started to slow down as inflation continued to surge around the world. Rising prices forced a hawkish response from central banks to bring down inflation. 

In this second phase, between April and September, the gold price declined, reaching a bottom of $1,600.

Moving forward to October, US inflation offered the first signals of slowing down. Gold started to rebound as investors predicted a coming end to central bank action. 

This third and last segment lasted until the end of 2022, bringing the gold price back above $1,800.

The Markets in 2022

Stock markets and bonds post a double-digit decline in 2022. Tech stocks were among the worst hit, contributing to the Nasdaq losing around 30% of its value. Meanwhile, rising rates saw the value of outstanding bonds decline. 

The spot price of long-duration bonds fell especially sharply. At the same time, Bitcoin lost more than 60% of its value.

In a year of dramatic falls, gold proved robust, holding steady just above $1,800. For holders of EUR, AUD, NZD, JPY, and GBP, gold turned green in 2022 thanks to the dollar’s strength. 

Once again, gold demonstrated its role as a safe haven during market turmoil. 

You might have expected massive outflows from gold holdings in 2022 with U.S. interest rates jumping from 0.5% to 4.5%. That didn’t happen, despite the metal’s lack of yield – a stark contrast from what happened in 2013.

Will gold be a good investment in 2023?

What are the potential benefits of gold investment in 2023? Many investors hold a moderate percentage of their portfolio in gold and silver because of its balancing function. Bullion can protect them in case of further stock collapses, but also in case of currency turmoil. 

In unprecedented years like 2020, with the shock of the pandemic, bullion still protected investors. Even when the market loses faith in financial institutions, investors still trust gold. That’s because of its history as a valuable asset dating back centuries.

Why could 2023 be a positive year for gold?

Many investment banks predict further recoveries for gold in 2023. This is because they are optimistic about a return to a normal level of inflation. This should be a positive catalyst for the price of gold.

Below, we explore some of the catalysts that gold investors should consider.

Investors’ interest in gold remains high

The gold price enjoyed a solid rebound in the last three months of 2022. Silver did even better. Investors’ interest in gold remains strong as a result.

The last few years have been volatile in the financial markets. Investors need stability in their portfolios when they can’t be certain of the performance of wider markets.

Inflation slowing down

There are increasing signals that inflation is globally slowing down. In the US the official inflation data declined from 9.1% to 7.1% in recent months. Europe is slightly behind on this trend, but it should follow soon.

This should reduce the pressure on central banks like the Fed or ECB to continue with their current approach. A progressive return to dovish monetary policies may represent a bullish catalyst for gold.

Central banks buying gold

The World Gold Council data has shown that the demand for bullion coming from central banks strongly increased in 2022. It reached its highest level since 1967. In the third quarter of last year alone, central bank buying reached 400 tonnes. 

This demand is coming from different countries, including Russia and China. Central banks diversifying their reserves away from the dollar may target gold as a replacement.

central bank buying demand gold

Geopolitical uncertainty

The geopolitical scenario remains complicated. The situation between Russia and Ukraine looks set to continue. For the time being, the rally in the price of energy seems to have stopped. Yet, uncertainty persists just around the corner. 

In 2023 there are also recessionary risks, which could trigger further geopolitical risks. We should also mention the return of COVID-19, which hit China with another wave at the end of 2022. Add to this, the risk of new restrictions and further delays to supply chains.

gold london vault holdings data
Gold London vault holdings data – January-November 2022

Ongoing impacts of quantitative easing

There’s a lot of money chasing a finite amount of goods and services. By the law of supply and demand, the price of those goods and services must rise to balance supply and demand.

The financial crisis of 2008 led to central banks printing a lot of money. That happened again in 2020 with the COVID-19 crisis.

Many economists think that this causes inflation. This dynamic applies to all commodities, including gold and silver. For example, in 1971, the prices of gold and silver have risen since 1971 from $35/oz and $1.55, respectively. 

Today, those prices are $1,959 and $23.50, making them extraordinary inflation hedges. 

In the opinion of Dave Kranzler, gold will continue to be an excellent investment. This hedge fund manager, precious metals analyst, and the author cite housing as justification.

He states that, in 2000, the median price of a home per the U.S. Census Bureau was $119,600. It took 424 ozs of gold to buy that median-priced house. 

By the first quarter of 2023, the median price of a home was $436,800. Currently, it takes just 223 ozs of gold to buy the median-priced home in the U.S. Gold is thus more than hedged against housing price inflation

Kranzler believes that the rise in the price of gold and silver does not yet fully price in the damage caused by quantitative easing (money printing). Nor does it reflect the rising geopolitical and economic risks currently unfolding. 

He forecasts both metals are excellent for wealth preservation and wealth enhancement.

Investing in Gold: Frequently asked questions

Is gold a good investment?

People invest in gold as a wealth-preservation asset. This is particularly useful during periods of economic turbulence and rising inflation.

Over many centuries, gold has proved to be a remarkable hedge against reckless government and central bank policies. Gold is negatively correlated with financial assets. This means that it generally appreciates in value when financial assets decline in value. 

Why is gold seen as a hedge against inflation?

At the beginning of this century, the price of gold according to the a.m. London price fix was $282 priced in U.S. dollars. At the time of writing, the price of gold was $1,959.

Inflation is often and incorrectly attributed to rising prices. Rising prices are the product of “inflation” and not the cause. In the modern fiat currency monetary system, central banks tend to increase the supply of currency as a policy tool. 

In theory, an increase in the amount of money should reflect a commensurate percentage increase in wealth output. This doesn’t happen in reality.

It’s not always been this way. In the past, many economies worked to “the gold standard”. They could only print money that reflected the amount of hold their central banks held. 

This stopped being the case in 1971. Since then, the amount of money in the world has increased significantly. In the last three years, that rate of increase has been far greater than the increase in global wealth output.

Gold price forecast for 2023

The environment for bullion remains positive. There is an expectation of an upcoming consolidation phase and space for further recoveries. 

If the U.S. dollar dips further, more demand to buy investment gold may trigger new price rebounds. The main risk for gold is the possibility of further interest rate hikes from central banks in the long term.

A majority of analysts have predicted further rallies for gold in 2023. Many commentators think the current market resembles the markets in 2001 and 2008. They’re expecting a bullish major move for gold as a result.

Some analysts go further in speculation that gold could reach a new all-time high in 2023. They believe this may be the start of a “new secular bull market”. 

Adding to this, Robert Kiyosaki, author of “Rich Dad Poor Dad” is extremely bullish on gold. His forecast is for a remarkable rally in the coming years. He thinks there is potential for a price of $3,800 per ounce. 

He also believes silver could do even better, jumping to $75 per ounce. That’s three times higher than the current level.

How can I invest in gold?

There are many ways into buying gold as an investment. The first main difference is between physical gold and paper gold.

Physical gold refers to:

  • Investment bars
  • Coins
  • Jewellery

The most common instrument for buying paper gold is a Gold Exchange-traded Fund. Some of the most popular gold ETFs hold physical gold to back their shares, with the share price tracking the price of gold. 

The problem is these passive funds incur costly fees. They may also expose investors to heightened counterparty risk. Other investment methods include:

  • Futures
  • Options
  • CFDs (Contract for Difference)
  • Derivatives instruments

Physical gold, on the other hand, has the advantage of tangibility. Also, depending on the platform, physical gold can offer the security of legal title ownership. 

Modern online trading platforms offer investors significant benefits. They can buy and sell gold in a few clicks. They can also take advantage of both directions of movement (through long and short positions). 

How to invest in gold with Kinesis

If you’re asking whether to invest in gold, you should consider Kinesis Gold KAU. 

Kinesis has created a digital gold-backed asset, which corresponds to one gram of gold. That gold is fully backed by the equivalent amount of physical metal, held in storage.

As such, this digital gold represents a strong investment solution. KAU blends the enduring value of physical gold with the high liquidity of paper gold, which combines the advantages of both paper and physical gold.

Gold as everyday money

The underlying physical gold backing each KAU is fully allocated. As the holder, you can redeem it as physical bullion anytime, anywhere in the world. 

Moreover, holders have the possibility to spend and transfer KAU. This makes a KAU just like regular cash that you can use with your Kinesis Virtual Card

Monthly yield

Kinesis offers a further advantage. Simply by holding the digitalised KAU currency, investors receive a monthly yield. We pay this directly into your account in physical gold. 

So, like with bonds, you get a monthly yield. But with KAU, you also benefit from owning the metal and the utility of a modern-day currency.

Join Kinesis to open your account today.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.