What are the main market drivers for gold in 2023? Why is bullion still a crucial asset for investors?
In this Investor’s guide, we explore the current scenario in the gold market and the wider macroeconomic situation, going on to highlight the potential advantages of holding gold in an investment portfolio.
This analysis also explains the differences between physical gold, paper gold and digitalised forms of the metal available in the market today.
What happened to the price of gold in 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 analyse gold’s movements last year in more depth, the year can be divided into three distinct segments.
In the first few months of the year, the price skyrocketed to a new all-time record of $2,075. This was mostly due to the geopolitical risks, with the growing tensions between Russia and Ukraine and the subsequent outbreak of war.
After this bullish spike, the gold price started to slow down as inflation continued to surge around the world. The rapid growth of consumer prices forced central banks to act with a switch to aggressively hawkish monetary policies to try and curb inflation. In this second phase, between April and September, the gold price declined, reaching a bottom of $1,600.
In October, once U.S. inflation started to offer the first signals of slowing down, gold started to rebound as investors predicted that this hawkish approach by central banks would soon end. This third and last segment lasted until the end of 2022, bringing the gold price back above $1,800.
The Markets in 2022
Observing the performance of other notable asset classes, last year saw stock markets and bonds post a double-digit decline. 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, with the spot price of long-duration bonds falling 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. Moreover, due to the appreciation of the USD on the forex market, gold closed 2022 in green in many currencies, including EUR, AUD, NZD, JPY, and GBP. Once again, gold demonstrated its role as a safe haven during market turmoil.
Even with interest rates in the US jumping from 0.5% to 4.5% over the course of 2022, this did not generate any massive outflows from gold holdings, 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? Investors know that holding a moderate percentage of their portfolio in gold and silver has a 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 protected investors. Even when confidence in financial institutions is shaken, investors will still trust gold with its history as a valued asset dating back centuries.
Why could 2023 be a positive year for gold?
Many investment banks predict further recoveries for gold in 2023. Expectations for a progressive return to a normal level of inflation have represented a positive catalyst for gold in the last few months. There are more factors which could also be seen as positive for bullion in 2023.
Below, we explore some of the catalysts that gold investors should consider.
Investors’ interest in gold remains high
The gold price closed last year with a solid rebound. Its performance in the last three months of 2022 was extremely positive (and silver did even better), thus investors’ interest in gold remains considerable.
The high volatility of the last few years has increased investors’ need for stability in their portfolios, while markets are walking on an uncertain path.
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 would reduce the pressure on the Federal Reserve, the European Central Bank and other central banks to continue their hawkish monetary policies. 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, reaching 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, and is likely to continue over the next few years as many central banks are looking to diversify their reserves away from the dollar (the so-called de-dollarisation reserves) with gold the perfect candidate for this role.
Geopolitical uncertainty
The geopolitical scenario remains complicated, with a particular focus on the Russia-Ukraine conflict which remains ongoing. For the time being, the rally in the price of energy seems to have stopped, but uncertainty remains 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.
How can I invest in gold?
While gold often forms a key part of an investor’s portfolio, there are of course many ways to invest in the precious metal. The first main difference is between physical gold and paper gold.
Physical gold refers to investment bars, coins and jewellery, while 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. However, these passive funds can often incur costly fees and may expose investors to heightened counterparty risk. Other investment methods include Futures, Options, CFDs (Contract for Difference) and derivatives instruments, for example.
Physical gold, on the other hand, has the advantage of tangibility and – depending on the platform – can offer the security of legal title ownership. Thanks to the introduction of modern online trading platforms, investors can buy and sell gold in a few clicks, taking advantage of both directions of movement (through long and short positions).
How to invest in gold with Kinesis
You might be wondering: is it possible to combine the advantages of both paper and physical gold? Kinesis has created a digital gold-backed asset, Kinesis Gold KAU, which corresponds to one gram of gold that is fully backed by the equivalent amount of physical metal, held in storage.
As such, this digital gold represents a strong investment solution as the KAU blends the enduring value of physical gold with the high liquidity of paper gold.
Gold as everyday money
The underlying physical gold backing each KAU is fully allocated and can be redeemed by the holder as physical bullion anytime, anywhere in the world. Moreover, holders have the possibility to spend and transfer KAU just like regular cash with their Kinesis Virtual Card.
Monthly Yield
Kinesis offers a further advantage. Simply by holding the digitalised KAU currency, investors receive a monthly yield, paid directly into their account in physical gold. The monthly yield, therefore, introduces the yield traditionally associated with bonds to the asset of gold, combining the value-holding attraction of the metal with all the utility of a modern-day currency.
Gold Price Forecast for 2023
The environment for bullion remains positive, with an expectation of an upcoming consolidation phase and space for further recoveries. Any further decline of the US dollar, combined with dovish monetary policies could push investors to buy bullion, triggering new rebounds. The main risk for gold is the possibility of further interest rate hikes from central banks in the long term.
Looking at other forecasts, a majority of analysts have predicted further rallies for gold in 2023, with many commenting on the current market conditions holding a mirror up to those last seen in 2001 and 2008 – with anticipation of a bullish major move for gold.
Some analysts go further in speculation that gold could reach a new all-time high in 2023, marking 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, with potential growth to $3,800 per ounce, while silver could do even better, jumping to $75 per ounce -three times higher than current levels
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.
