2022 Was Mediocre for Gold. Can We Count On 2023?

Gold is likely to end this year flat, but I bet that we’ll see better performance in 2023. The question is, how much better?

2022 is almost over. I hope it was a good time for you! For me, it was, although some periods were quite intense. And how has 2022 been for the gold market? Well, it was a mediocre year for the yellow metal. As the chart below shows, its price barely changed from $1,806 on December 30, 2021 to $1,814 on December 20, 2022. This flat performance occurred despite high inflation, a deep plunge in the stock market, and intensifying worries about an upcoming recession.

On the other hand, 2022 was also a year of a very aggressive monetary tightening cycle. Thus, despite the Fed’s hikes in the federal funds rate by 4.25 basis points this year, gold managed to defend its entry level. Which is, actually, a great achievement, especially compared to the bearish performance of the U.S. stock market, not to mention the cryptocurrencies which experienced a severe winter.

What Drove Gold Prices in 2022?

The ending year was full of important events. First of all, Russia invaded Ukraine. Initially, the war supported gold prices. Second, inflation surged this year, reaching 9%, a multi-year high, as the chart below shows. Again, initially, gold benefited from inflationary worries. However, in March, the Fed started hiking interest rates, which pushed gold prices into the bear market which lasted until early November. This is when it became clear that the FOMC would slow down the pace of interest rate hikes, which initiated the rebound in gold prices.

As always, the price of the yellow metal was heavily influenced by the U.S. dollar and the real interest rates. Since early November, both the greenback and long-term bond yields (adjusted for inflation) started to decline, as the chart below shows. This shift enabled gold to catch its breath.

Implications for Gold

What does it all imply for the gold (and silver) market in 2023? Well, the only certain thing about the future is that it won’t be like the past. Indeed, inflation has peaked. It implies a less hawkish Fed in 2023. What’s more, the recession is coming, which will additionally force the U.S. central bank to adopt a more dovish stance. All these changes will make the macroeconomic environment much more friendly for gold. Hence, I bet that the yellow metal’s performance in 2023 will be better than in 2022, although there might be bearish periods throughout the year.

Arkadiusz Sieron, PhD