The gold price in 2022 was characterized by the Ukraine war, high inflation, recession fears and the monetary policy turnaround with which the central banks want to counteract the developments.
Currently in mid-November 2022, the price now stands at 1,770 dollars per ounce, calculated in euros at about 1,710 euros. But what will happen next? How will the gold price develop in 2023?
Review: The gold price development 2022
After the price of gold in the second half of 2021 was already driven by increased inflation rates, gold started 2022 at a price of $1,804 / troy ounce. The big escalation, of course, was then Russia's invasion of Ukraine at the end of February, which drove the price to over $2,043.
Since the escalation in Ukraine, however, it went south. In the months that followed, from mid-April 22 at the latest, the precious metal trended downward. The value of a troy ounce fell to 1,627 dollars at the end of October.
Only with the beginning of November 2022 the downward trend seems to be stopped. The price recently climbed within days again to 1,770 dollars (1,710 euros) / ounce and thus seems to have finally broken out.
Why did the price of gold fall in 2022?
Gold is traded worldwide in dollars. Because the dollar has been very strong against other currencies, the yellow precious metal is becoming more expensive for everyone outside the dollar area. This slows demand and thus depresses the price.
Despite the bear market on the stock exchanges, investors apparently saw gold less as a safe alternative than in the past. The reason for this can be seen primarily in the development of interest rates. While gold does not yield any interest, other, also very safe forms of investment are now suddenly attracting investors again with an interest yield.
Forecast 2023: What's in store for us?
Making a forecast is always difficult. Especially for forecasting developments in financial markets, which depend on so many different factors. The following considerations are therefore intended solely as food for thought and are not in any way a recommendation to buy or invest.
The following factors are likely to have a not insignificant impact on the gold price in 2023:
Inflation and interest rate development
The extreme inflation rates we saw last year forced the central banks to turn around their interest rate and monetary policies in 2022 after decades of cheap money. Since then, the Fed and the ECB have significantly raised the key interest rate several times (U.S. key rate currently at 3.75 - 4.00 percent; ECB key rate at 2.00 percent).
For gold, this means above all stronger competition in the class of safe investments. This is because the quite safe government bonds of countries with good credit ratings suddenly yield interest, while interest-free gold pays no current yield. Gold thus becomes less attractive and demand falls.
The question here is how often and how much will central banks still raise interest rates in 2023? As soon as inflation rates fall, central banks are also likely to loosen the reins again somewhat. In the USA, inflation has already leveled off more than expected in October 2022. This leads analysts to believe that the coming hikes could be lower and that the Fed's key interest rate will reach a high in spring 2023 at the latest.
Where does the recession occur and how severe is it?
Every time interest rates are raised, loans also become more expensive, which means there is always a risk of the economy stalling or slipping into recession.
The signs on the stock exchanges in 2022 clearly pointed to a bear market. All major indices were clearly in the red (the S&P 500 at times more than -21%), inflation and interest rate developments, high energy prices and concerns about geopolitical events depressed investor sentiment.
The recession has also already reached the real economy, with the US economy contracting most recently and the EU economy also slipping into a recessionary phase, as expected.
While analysts expect the US to emerge from recession as early as the first half of 2023, many also agree that the downturn in Europe will take longer.
In phases of recession, gold has always lived up to its reputation as a safe haven in times of crisis. Even if there are increasing signs of a macroeconomic downturn, investors like to take refuge in safe precious metals, which increases demand and thus the price.
If high inflation coincides with a period of economic weakness, this is also known as stagflation. The last stagflation phases occurred in the 1970s and 1980s. At that time, gold was one of the strongest investments and visibly outperformed other asset classes.
The exchange rate of dollar & euro
What must always be considered in relation to gold is the exchange rate. Because gold is traded worldwide in dollars, the exchange rate between the dollar and the euro is always relevant for us in Europe.
A strong dollar can lead to a rising gold price in euros, even if the rate in dollars per troy ounce is stable or even declining.
Since the FED reacted much earlier and more aggressively to high inflation than the ECB, and the U.S. economy has also proven surprisingly stable, the dollar is much stronger than the euro. In fact, the dollar was at a 20-year high against other major currencies in 2022. Against the euro, it even went beyond dollar parity, or a 1:1 exchange rate, last year. At times, the dollar was even worth more than the euro.
For gold fans in Europe, the question is therefore how exchange rates will develop in 2023. With declining inflation in the U.S. and the outlook for less strong interest rate hikes by the FED, the dollar fell again recently. A rising euro exchange rate against the dollar makes buying gold in the euro area somewhat cheaper again.
Geopolitics: wars and fears
We saw how strongly geopolitical events affect the markets and especially the gold price with Putin's invasion of Ukraine.
Above all, the dependence of Europe's economy on Russia's energy supplies led to extreme reactions on the markets. Gold was in enormous demand as a safe haven in the short term and the price shot up to an all-time high (in euros) at the beginning of March. However, the Ukraine conflict is only likely to have a greater impact on the gold price in 2023 if there is a further escalation.
China, on the other hand, is a source of concern. The increasingly authoritarian leadership makes no secret of its intention to bring democratic Taiwan under communist control, if necessary by force. A military attack would be the first step toward another major conflict that would crash the stock markets and catapult the price of gold upward.
Will the Crypto Crash Bring a Return to Gold?
Another interesting factor regarding gold could be a consideration of cryptocurrencies. Crypto was considered the new gold until recently. Independent of countries and banks, decentralized and limited in availability, Bitcoin & Co. became the new popular speculation and investment object.
Last year, however, not only did Bitcoin's price plummet dramatically, some alt-coins also turned out to be "shitcoins" and major exchanges and trading venues slid into insolvency.
Sometimes this could be an incentive for some investors to bet on real gold again instead of digital gold 2.0.
Gold price 2023 - mixed feelings among analysts?
With these potential developments in mind, analysts' and experts' forecasts for gold price development in 2023 are mixed.
Incrementum analysts Ronald Stöferle and Mark Valek remain true to their forecast of a "golden decade" in their latest In Gold We Trust Report 2022.
"We maintain our long-term price target of USD 4,800 by 2030"
- In Gold We Trust 2022
In general, many gold analysts believe that gold is currently trading (too) cheaply and that we are at the beginning of a longer upward trend.
The analysts of the major Swiss bank UBS assume that the gold price could stand at around 1,900 U.S. dollars per troy ounce towards the end of 2023, whereby a certain headwind should still offer opportunities for a favorable entry in the next few months.
Many investors and analysts seem to agree that the gold price will not start to pick up until spring 2023. Because then it is expected that the FED will no longer raise the interest rate level.
In contrast, in a Reuters poll of analysts and investors in early November, a majority expect the average gold price in 2023 to be around $1,712/ounce.
But there is also an opposing forecast: analysts at the World Bank and the IMF tend to expect the gold price to fall further in 2023. They fear a sovereign debt crisis on the horizon in the wake of a global recession.
Gold preserves purchasing power
Looking at the price development of gold shows that it is often wrongly described as speculative and volatile only in the short term. Rather, gold has shown and proven itself to be a solid and safe form of investment when viewed over the longer term.
Because while central banks can create money out of nothing (keyword: "Fiat Money" - Let there be money), the amount of gold is finite. Even though the precious metal does not yield any interest, it is a very safe investment because it can never completely lose its value.
Inflation causes financial assets to permanently lose value over time. The currently high, in some cases double-digit inflation rates are causing saved values to melt away even more. Even if interest-bearing investments seem more attractive than gold at the moment, you should always keep an eye on real interest rates. And with high inflation, these can still be negative.
The stability of gold is deeply rooted in people and so even professional investors are very happy to turn to the yellow metal again as soon as a major crisis or an inflationary phase becomes apparent. Above all, to protect themselves from the loss of purchasing power of money. The precious metal has been used as a means of payment for thousands of years and has survived even the most severe crises.
Strategy for people interested in gold
But what is now the most skillful strategy for those interested in gold? Depending on the joy to gold, you should invest a good part of your unneeded savings in precious metals.
Gold is a stabilizing addition to any investment portfolio. This is because a certain proportion of gold reduces the risk of suffering major losses. We recommend investing a share of at least 5% to a maximum of 20% of assets in gold.
For long-term asset protection, we clearly recommend buying physical gold in the form of coins and bars, as this offers the highest level of security.
Although paper gold also allows virtual participation in the gold price, it is traded by investors much more speculatively and, like other securities, is associated with more or less high risks.
In order to compensate for fluctuating gold prices, it is advisable to buy gold continuously at regular intervals in order to neutralize fluctuations in the gold price. Because a gold investment should always be thought in the long term and is not suitable for short-term speculation.
A favorable variant to the gold acquisition is the gold exchange - from old gold to investment gold. Here one uses the constant relationship of the old gold value to the gold rate and converts thereby unused (and usually also from the value unknown) old gold to an easily tradable form such as bars or coins. If one follows these upward trends, so the most favorable variant to investment gold to come, its old jewelry to sell and instead on an investment gold investment in coins or bars to set. You can find all prices on our website. This way you will not only profit from a high gold price when selling, but also from a future increase in value when buying gold.
Become a gold investor and protect your saved assets against loss of value. Visit one of our branches in Vienna and benefit from 130 years of know-how from family tradition. The precious metal experts of Gold & Co are looking forward to meeting you! What remains is gold.