(Kitco News) - The gold market has struggled to attract investment capital through most of 2022, but growing uncertainty into 2023 should make the precious metal an attractive safe-haven asset and store of value, according to one market analyst.
In an interview with Kitco News, Joy Yang, global head of index product management at MarketVector Indexes, said there has been a lot of push and pull in the marketplace as rising inflation has forced the Federal Reserve to raise interest rates at its fastest pace in 50 years. At the same time, slowing growth in China and Europe has increased the threat that the global economy will fall into a major recession.
Yang said that in this environment, it's not surprising that investors have shied away from the precious metal this year. She added that she doesn't see it as investor apathy but more as hesitancy.
"There are a lot of things happening in global financial markets and investors want to be careful because in these conditions getting something wrong can be quite painful," she said.
However, Yang added that investors are starting to recognize gold's value as a safe-haven asset. One major factor that is shining new light on gold is central bank demand. During the third quarter, central banks bought nearly 400 tonnes of gold.
Official sector demand remains unquenchable; last week, the World Gold Council reported that central banks bought another 31 tonnes of gold in October. The WGC noted that global official gold reserves total 36,782 tonnes, their highest level since November 1974.
"If you look past all the noise, investors can see that there is plenty of utility in gold and that will attract investor demand," said Yang. "Its continued role as a global reserve currency will continue to support demand."
Yang said another factor that should improve investment demand for gold is the ongoing collapse of cryptocurrencies.
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In the last few years, unprecedented demand for digital currencies like Bitcoin had a substantial impact on gold as some investors saw cryptocurrencies as a better store of value.
However, gold has significantly outperformed Bitcoin of late, which is down 63% so far this year as bulls try to hold support around $17,000. Meanwhile, gold is down less than 3% on the year, as prices last traded around $1,780 an ounce.
Although gold is outperforming digital currencies, Yang said that the market has learned a valuable lesson from the growing digital marketplace, and that if gold wants to attract new investors, it needs to develop a bigger digital footprint.
"I don't think gold's future is completely digital. It's too important as a physical asset to be completely digital," she said. "But digital gold will provide ease of access to investors, the same way ETFs have provided ease of access."
