When facing times of uncertainty, where do you turn? For some of us, talking things out with a trusted family member or friend helps bring us peace of mind. One of my favorite things to do when faced with the unknown is to overcome it with new knowledge by doing research and learning as much about the topic as possible. But whatever we choose to do when faced with uncertainty, the goal is always the same: to feel safe.
And with the steady increase in market uncertainty over the past year, physical gold has become popular for both consumers and central banks to look to for peace of mind.
Gold prices recently surged to an eight-month high.
On January 10, 2023, Reuters reported that gold reached as high as $1,883.48/oz., its highest level since May 2022. Explaining the rise of gold prices in recent weeks, CNBC noted on January 3, 2023, that “gold prices have been on a general incline since the beginning of November as market turbulence, rising recession expectations, and more gold purchases from central banks underpinned demand.”
I’ve written before about de-dollarization—the process by which central banks look to replace their U.S. dollar reserves with other assets. The article mentioned above quotes Ole Hansen, head of commodity strategy at Saxo Bank, as saying that 2022 saw a record amount of gold purchased by central banks for this very reason and that a potential continuation of this practice is providing a “soft floor” under the gold market.
I think it’s important to note when central banks start turning away from paper currencies and toward hard assets like gold. When the governments of the world are worried about the dollar losing value and instead see gold as one of their best bets as a store of wealth during times of economic uncertainty or volatility, I see it as a potential signpost of things to come. Does a record amount of gold buying by central banks mean a recession is imminent? Not necessarily—but seeing the impact of these actions on gold prices does provide me with additional peace of mind knowing that I have physical gold in my portfolio.
Gold prices may continue rising, reaching new all-time highs in 2023.
This is why it can be helpful to continue paying attention to the rest of the economy. According to CNBC, inflation is expected to remain high even as central banks begin to rein in their interest rate–hiking policies in the face of possible recessions. If banks do a full pivot regarding these policies in 2023, CNBC says this “would likely have major implications for gold prices, according to strategists.”
Eric Strand, manager of the AuAg ESG Gold Mining ETF, says he expects new all-time highs for gold in 2023—a “new secular bull market” that could see prices above $2,100/oz. His reasoning, it seems, is based on central banks adding more and more gold to their reserves, along with his opinion that a pivot on central bank interest rate hikes “will ignite an explosive move for gold for years to come.”
Strand is not alone in predicting a “major move” for gold in 2023. Juerg Keiner, managing director and chief investment officer at Swiss Asia Capital, said in a December 2022 CNBC interview that current market conditions mirror those of 2008, when gold “went from $600 to $1,800 [per ounce] in no time,” adding, “I think I’m looking at a move [in gold prices] which will really make new highs.”
Gold continues to reward those who trust its ability to serve as a financial hedge and store of wealth.
Over the course of 2022, inflation remained high, interest rates rose, and stocks fell. Gold, meanwhile, ended the year at nearly the same level it entered 2022, showcasing its ability to serve as a store of wealth and financial hedge in times of economic uncertainty. Now, with predictions of new all-time high prices for gold and record gold demand from central banks, it looks like history may repeat itself, with gold soaring as it did in the years surrounding previous recessions.
Are we really seeing the start of a new gold bull market? Will the precious metal see new all-time high prices in 2023? The truth is that no one can say for certain what the future may hold. But then again, isn’t that uncertainty exactly why so many are turning to gold in the first place?