The S&P 500 is down more than 20% in 2022. Bitcoin is down over 65%. But gold? It rose 1.3%. The classic inflation hedge worked its magic during a frenetic year for investors, but it wasn’t the strong performance that many gold bugs had. expectation.
The lack of impressive returns is mainly the result of central banks around the world raising interest rates aggressively to combat inflation. Rising interest rates have increased the value of gold’s competition—the U.S. dollar and U.S. Treasuries—sending prices stagnating below $2,000 per troy ounce.
Mobeen Tahir, investment strategist at WisdomTree, explains in a CNBC interview last week. “The strengthening US dollar and rising Treasury yields have become headwinds for gold.”
But in recent weeks, with the strength of the US dollar fadingGold prices rose to a six-month high. And precious metals got another boost from China’s decision even easier its COVID-19 restrictions this week.
Yellow future rose about 1% to $1,822 a troy ounce on Tuesday after trading as high as $1,838 in the morning.
Analysts believe that gold demand will pick up as China, the world’s largest single metal market, reopens. There is also a range of potential trends for gold in the coming year.
If the Federal Reserve pauses or slows rate hikes, Treasury yields fall, or US economic data deteriorates while inflation remains high, gold will outperform.
“These are Goldilocks conditions for gold. Perfect for the conditions for gold,” said Tahir.
But in the World Gold Council Gold Outlook 2023Analysts said they expect a “steady but positive performance for gold” next year amid competitive headwinds.
On the one hand, mild downturns tend to bode well for gold, as does a weakening US dollar and rising geopolitical tensions. On the other hand, inflation is expected to decline in 2023, which could steer investors towards riskier assets.
“Lower inflation means interest in gold is likely to fade from an inflation hedge perspective,” the analysts wrote.
Higher bond yields in the past have also kept investors away from gold, but World Gold Council analysts said they believe yields aren’t high enough to significantly hurt prices.
“While higher bond yields are associated with lower gold returns and may currently be considered attractive by some investors, historical current yields are not an obstacle,” they wrote. for gold, especially when taking into account the weaker US dollar.”
For investors, Tahir of WisdomTree notes, it’s important to remember that “every rally in gold has a silver lining.”
“We could see more investors expressing an optimistic view of gold over silver next year,” he said, noting that the two precious metals often move in tandem, with silver in usually yields better returns.
silver price was up nearly 1.5% on Tuesday and up about 15% over the past month.
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