Just over halfway through 2022, we’re surprised how quickly time seems to be moving. With more than six months already passed, we thought now is the perfect moment to take stock of how the gold market is shaping up. What is the gold price now? And what are the market forces impacting the price of this popular precious metal? These are the questions we’ll look to answer in this article.
We’ll also examine the likelihood of an upcoming recession, whether this year or next and project forward outlining our expectations for the yellow metal in 2023.
Gold shines bright while silver tarnishes
In the current climate of rising interest rates and high inflation, times are tough for the UK economy and investors. With a potential recession or a period of stagflation, possibly both, on the horizon while the country is in a cost-of-living crisis, it’s unsurprising if even the confidence of the most bullish investor is dented.
A fractured geopolitical landscape adds further fuel to create the perfect storm ruffling investors’ feathers. However, this challenging environment has led to a high demand for gold as investors look to batten down the hatches hoping for more stability. This is because investors consider gold a safe haven and secure store for their wealth.
Precedent could prove them right. Gold has historically outperformed other asset classes during periods of economic turbulence. We predict that many investors will turn to gold to safeguard their wealth moving into the second half of 2022 and into the new year.
In trying times, gold has remained stable in 2022 to date. At the time of writing, July 25th 2022, gold is priced at £46.29 per gram, on January 5th it was £43.20 per gram. Furthermore, the
World Gold Council has confirmed that gold is up 9% in H1 2022, making it one of the best performing assets in this tumultuous year.
The good news for gold buyers is the data shows that gold historically performs well in times of economic downturn. Therefore, to those who have watched the market movements over time, it’s no great surprise that gold continues to hover near all-time price highs. This at a time when constant high inflation has meant the bank of England has raised its base rate five times in less than a year from November 2021. The picture is much the same in the US, the U.S Fed has raised rates 1.5% this year, with interest rates jumping a staggering 0.75% in June 2022 alone.
Silver isn’t enjoying such heights, however. Famed for its industrial uses, silver’s fate has been tied up in geopolitical events, namely the war in Ukraine. In part due to these conditions, silver has fallen by 5%.
Platinum and palladium prices have been more positive, up 2.6% and 11.7% respectively. Reduced supply from Russia has led to higher demand and hence the gold price has also risen. Additionally, the Queen’s Platinum Jubilee may have given the metal a boost.
In short, safe haven precious metals have remained in high demand as investors look to maximise their returns during a period of high inflation and fears of a recession.
Gold outshines all other forms of investment
The first half of 2022 was a historically bad year for the stock market. In fact, H1 2022 was the worst half year for stocks in more than 50 years. Rising interest rates, fears over recession in multiple economies and geopolitical turmoil have combined to ensure that stock markets are under stress.
The FTSE 250 has plummeted more than 20%, Europe’s STOXX 600 has fallen 17% and Asia’s MSCI is down a hugely significant 29%.
Stateside, the S&P 500 has dropped more than 20% this year – its worst return since the 70s. The Dow Jones has declined 15% and the Nasdaq has lost over 30% this year, adding to a year of record lows.
Cryptocurrency crashes with volatile performance
The new kid on the block cryptocurrency has somewhat fallen from grace in the first half of 2022. From its heights in March, Bitcoin’s value has halved, and Ether, the second most popular cryptocurrency, has fallen dramatically losing 70% of its value.
Riskier investments have failed to net investors the results they were looking for. With a recession likely the obvious move for investors is to look to preserve their wealth by balancing portfolios with more robust assets such as gold and precious metals.
Lean more about how gold can help offset the volatility of cryptocurrency in our article from earlier this year.
Why gold will fare well in 2023
Gold performs well in times of economic uncertainty. This is one of the major factors that will give it the best chance to outperform other assets in 2023. We’ve picked out three other reasons why the yellow metal should shine bright next year:
1. Gold flourishes in stagflationary environments
Stagflation – a period of consistently high inflation, low economic growth and high unemployment – is possible in 2023. The last notable period of stagflation was in the 1970s when high deficits, low interest rates and oil embargos combined to stagnate growth. In 2022, two of the three elements which spell out stagflation are in place: high interest rates and low economic growth. If high unemployment levels are added the economy will be in stagflation.
Historically, gold has performed well during stagflation, as seen in the 1970s when gold became the highest growth asset.
2. Gold will be in high demand
Across 2022 so far investors have flocked to gold. The pandemic caused much economic uncertainty, and the war in Ukraine has pushed investors to hedge their bets by buying into gold.
High demand continues to keep the price of gold elevated. Central banks are opting to bolster their gold reserves with the intention of reinforcing fragile economies. In April this year, central banks purchased 19.4 tonnes of gold.
Next year economic uncertainty will be high, especially if a recession is confirmed. One thing is clear, during economic turmoil the demand for and price of gold rises.
3. Geopolitical forces
The war in Ukraine appears far from over. Geopolitical crises are another key factor which tend to cause the gold price to push higher. Russia’s aggression in Ukraine has led to commodity shortages through Western sanctions and supply chain chaos. Investors will continue to feel uncertainty as long as the war continues.
The situation does not look likely to improve for some time as NATO Secretary-General Jens Stolenberg has warned that the war could continue for years.
Recession on the way in 2023?
A recession was averted in 2022 when GDP grew by 0.5% in May. However, this could still occur in 2022 if GDP falls in successive quarters to the end of the year. However, most economists predict that a recession is more likely in 2023.
In a Financial Times survey, 68% of economists polled said they thought a recession would occur next year. Indeed, 38% predicted that the economy would drop into a recession in Q1 or Q2, while 30% thought Q3 or Q4 would be a more realistic timeline.
Recession will be unwelcomed in all corners; however savvy investors will point to the historical performance of gold in tough times as a point of confidence. Gold typically performs well during recessions, and this was the case following the 2000-2001 crash and the 2008 recession.
Diversify your portfolio to ride high in 2023
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