In November 2022, gold prices recorded their best monthly performance in 2 years, rising almost 8%, from $1,645/oz. to $1,753/oz. Gold has continued to perform strongly in the weeks since, while the outlook for gold appears to be in the precious metal’s favor.
Central banks are increasingly allocating gold into their reserves.
The People’s Bank of China recently increased its gold reserves for the first time since 2019 as it moves away from the U.S. dollar, purchasing 32 metric tons in November 2022. Gold demand from countries moving away from the dollar may continue to increase, according to Nicky Shiels, head of metals strategy at precious metals trader MKS PAMP. “As deglobalization accelerates, the non-G-10 nations are expected to ‘re-commoditize’ and ramp up gold holdings,” Shiels says in an articlepublished December 7, 2022, by Bloomberg.
In Q3 2022, central banks around the world purchased 400 metric tons of gold. An article published by The Economist on December 2, 2022, says that the precious metal appeals to central banks “because gold…recovers its shine in times of volatility and high inflation. In the long run, it is seen as a store of [wealth] and, not tied to any individual economy, seems immune to local political and financial turmoil.”
Analysts say volatility in the crypto marketplace could spur a movement into gold.
Michael Burry, The Big Short hedge fund manager famous for predicting the subprime mortgage crisis, says that gold is likely to benefit from turmoil in the cryptocurrency markets. On November 15, 2022, Burry wrote on Twitter, “[I’ve] long thought that the time for gold would be when crypto scandals merge into contagion,” days after the collapse of crypto exchange FTX.
Francisco Blanch, head of commodities and equity derivatives at Bank of America Global Research, also says that instability in the cryptocurrency market may act as a catalyst for increased gold prices. In a December 1, 2022, article by Barron’s, Blanch says, “With crypto assets collapsing so much, I think people are going to say, ‘Is it really that safe to put your money into some of this crypto, or should we be looking back at some of the more traditional stores of [wealth] like gold?’”
Major financial institutions have predicted higher gold prices in 2023.
Blanch’s team at Bank of America predicts that gold prices may rise substantially in 2023. Blanch notes that a pivot in policy by the Federal Reserve away from increasing interest rates may lead to gold prices rising as high as $2,000/oz. in 2023.
In a note to clients released in December 2022, Zoltan Pozsar of global bank and financial services firm Credit Suisse said that gold could reach $3,600/oz. if Russia begins accepting gold for oil in order to circumvent price caps.
Gold prices may be set to surge in the coming months based on factors ranging from U.S. monetary policy to struggling cryptocurrencies and foreign interest in the precious metal. Therefore, consumers may benefit from holding gold in their portfolios.
Read U.S. Money Reserve’s “Market Insider” each week for more economic insights. Nothing herein should be considered as portfolio or retirement advice as U.S. Money Reserve (“USMR”) cannot and does not offer financial advice. Clients should consult a financial advisor for specific advice. This commentary is provided by USMR for informational purposes only and is provided on an “as is” basis without any warranty of any kind, whether express or implied. Your use of the information provided in this commentary is entirely at your own risk. In no event will USMR be held liable for any indirect, special, incidental, or consequential damages arising out of the use of information contained in this commentary.