The gold market saw sluggish demand for most of 2022. However, according to the World Gold Council’s 2023 outlook forecast, the yellow metal will continue to be an important strategic asset as the new year will be filled with uncertainty.
“The more severe the recession, the better the gold”
Juan Carlos Artigas, head of global research at the World Gold Council (WGC), says in an interview that there is no clear consensus on what investors can expect to see in 2023. cryptocoin.com As you can follow from , central banks went to an unprecedented tightening to cool down inflation. This pushed the global economy to a breaking point.
Artigas notes that while most economists expect central bank tightening to push the global economy into a moderate recession, there are growing concerns that the world is headed for a more serious recession. The idea that the Federal Reserve could stage a soft landing was almost entirely relegated to the realm of hopes and dreams. Artigas says gold needs to show its value in this environment. In this context, he shares the following comment:
Historically, tightening cycles have ended in a recession. The more severe the recession, the better the gold.
“Probably the yellow metal will see some ripple”
In its latest report, the WGC notes that gold has seen positive returns in five of the last seven recessions. “A sharp drop in growth is enough for gold to perform well, especially if inflation is also high or rising,” analysts write in the report. WGC says that in addition to the health of the global economy, another factor that gold investors should pay attention to is the strength of the US dollar. Markets expect the Fed to halt the tightening cycle in the first half of next year. Thus, there is a growing consensus that the US dollar has peaked.
“The dollar top has historically been good for gold,” analysts said in the report. It also delivered positive gold returns 80% of the time 12 months after the peak,” he writes. In general, there is an expectation that investment demand will improve in the next year. However, interest rates are also projected to remain high for most of 2023. Moreover, the inflation outlook is projected to be murky at best. That’s why Artigas warns investors that gold will still see some volatility
“Gold’s return will be stable but positive”
Analysts warn that real rates will continue to rise if inflation falls and interest rates remain high. They also note that this is negative for gold prices. Based on this, they make the following statement:
On balance, gold’s yield will likely be stable, but positive, as it faces competing crosswinds from its drivers in 2023 as consensus awaits. However, there are many signs that the economy will probably not follow a well-defined path.
How much gold is appropriate in the portfolio?
As for investors staying away from gold until 2022, Artigas says that’s probably a mistake. WGC expects gold prices to end the year around $1,800. However, the precious metal is in the relatively neutral zone. At the same time, gold outpaced both the bond and equity markets this year. Yellow metal was one of the top performing assets in 2022. Artigas makes the following assessment:
Considering the headwinds we’ve seen this year, gold is doing very well. Investors with gold in their portfolios had better returns in 2022. It has also seen less losses and less volatility. We expect this to continue in 2023 as well.
Artigas also shares its view on how much gold investors should own. WGC research shows that investors should have between 2% and 10% of gold in their portfolios. Artigas also notes that anywhere in this range is suitable.
