(Kitco News) - Although the gold market saw lackluster demand through most of 2022, it will remain an important strategic asset as the new year will be filled with uncertainty, according to the World Gold Council's 2023 outlook forecast.
In an interview with Kitco News, Juan Carlos Artigas, global head of research at the World Gold Council, said there is no clear consensus on what investors can expect to see in 2023. Unprecedented central bank monetary policy tightening to cool down inflation has pushed the global economy to an inflection point.
Artigas explained that while most economists expect central bank tightening to push the global economy into a mild recession, there are growing concerns that the world is headed for a more severe recession. The idea that the Federal Reserve can orchestrate a soft landing has all but been relegated to the realm of hopes and dreams.
Artigas said that in this environment, gold should show its value.
"Historically, tightening cycles have ended in a recession," he said. "The more severe the recession, the better gold does."
In its latest report, the WGC noted that gold has seen positive returns during five of the last seven recessions.
"A sharp retrenchment in growth is sufficient for gold to do well, particularly if inflation is also high or rising," the analysts wrote in the report.
Along with the health of the global economy, WGC said that another factor gold investors need to pay attention to is the strength of the U.S. dollar. With the Federal Reserve forecasted to halt its tightening cycle by the first half of next year, there is a growing consensus that the U.S. dollar has seen its peak.
"A dollar peak has historically been good for gold, yielding positive gold returns 80% of the time (+14% on average, +16% median) 12 months after the peak," the analysts wrote in the report.
While investment demand is expected to improve next year, Artigas warned investors that gold could still see some volatility as interest rates are expected to remain high through most of 2023, with the inflation outlook muddied at best.
Analysts have noted that if inflation falls and interest rates remain elevated, real rates could continue to rise, which is negative for gold prices.
|
| Perth Mint dominates global bullion market: sells 114K ounces of gold in November as U.S. Mint sells 6K |
"On balance, gold's return in the environment that consensus expects in 2023 is likely to be stable but positive, as it faces competing crosswinds from its drivers. But there are plenty of signals that the economy may not follow a well-telegraphed path," the analysts said.
As for investors who shunned gold through 2022, Artigas said that was probably a mistake. With gold prices looking to end the year around $1,800, the precious metal is in relatively neutral territory. At the same time, gold is one of the best-performing assets this year, outperforming both bonds and equity markets.
"Given the headwinds we have seen this year, gold has held up very well," he said. "Investors who had gold in their portfolio in 2022 would have seen better returns, fewer losses and less volatility. We expect that will continue to be the case in 2022."
As to how much gold investors should have, Artigas said that WGC research shows investors should own anywhere between 2% and 10% of gold in their portfolio.
