It’s not that 2022 was a bad year for gold – there was growth. But its value didn’t grow nearly as much as analysts were expecting and investors were hoping.
In 2023, predictions are more optimistic, but it’s important to remember that they’re just predictions. If 2022 fell short, it’s entirely possible that 2023 misses the mark, too.
A lot of the uncertainty hinges on the same economic drivers that slowed gold’s growth in 2022, such as increasing interest rates, rising values of U.S. Treasuries, a potentially strong U.S. dollar, and the uncertainty surrounding demand in China, which is gold’s largest market.
Despite uncertainty and potential headwinds, gold has plenty going for it in 2023, too. The Fed is still raising rates, but slowing its pace. Although the loosening of COVID policies had a negative impact on China’s economy in December 2022, these same policy reversals should lead to a more robust GDP in China.
Currency is only as valuable as society says it is. Gold, on the other hand, is a tangible asset, and a finite one. That means even when paper money loses value, gold should hold its own. Hence, gold is widely considered to be an inflation hedge. If we didn’t measure the value of gold in currency, that assessment would be true 100% of the time.
But we do measure the value of gold in currency, so there are other mitigating factors that impact the value of this commodity.
For example, America’s last period of significant inflation started in 1973 and extended throughout the rest of the decade. During this timeframe, gold did follow the rule of being an inflation hedge. Its annualized return was 35%, even while inflation reached 8.8%.
Gold Is Expected To Rise In 2023 As U.S. Dollar Weakens
So should you buy or sell your gold in 2023? Starting in late 2022, gold futures started an upward trend. This was just as the U.S. dollar started softening in value. While there will be bumps one way or the other, the overall outlook for gold in 2023 is shiny.
No prediction is guaranteed, commodities are extremely volatile over the short-term, and this particular outlook depends on the U.S. dollar continuing to soften, in concert with a few other factors. But we’re already seeing some early signals in this vein.
The U.S. dollar may reverse course once again as the Fed is expected to continue raising rates throughout 2023, though the latest rate hike revealed a slowdown in their pace. These rates also affect the value of U.S. Treasuries. If the dollar stays strong, that makes it harder for gold prices to jump up.
Even if rates do come down, a positive year for gold also includes an expectation for higher demand in China with COVID-19 restrictions finally loosening. But what we saw in December was a Chinese economy that reacted negatively to the recent swing in COVID-19 policies, with business closures, labor struggles and many choosing to stay home.