Despite traditionally acting as a store of value during times of economic upheaval, gold has struggled in the past couple of months as inflation and a surging dollar impacted gold prices. With 2022 coming to a close amid a struggling global economy and full-blown recession, the consensus would be that, based on recent data, gold stocks will continue to struggle into 2023. However, the World Gold Council believes that the precious metal will perform positively in 2023 despite an “unusually high level of uncertainty” around next year’s projections for the metal.
According to the council’s “Gold Outlook 2023: The Global Economy at a Crossroads,” this positive prediction is based on a “mixed set of market influences’” that indicate gold will have a stable and positive performance in the year 2023. These influences include slower global economic growth, a limited recession, elevated inflation and the end of benchmark interest rates in developed countries such as the United States.
The council noted that weaker earnings coupled with a mild recession have historically been associated with an increase in gold demand and prices. With the greenback beginning to weaken against other major currencies after hitting a 20-year high in August, gold prices could rally in 2023. In addition, a weaker dollar tends to push gold prices higher as it increases demand for gold while a surging dollar is more likely to keep gold prices down and more controlled.
The World Gold Council report also noted that improved economic growth in China over the course of 2023 could further increase demand for gold. China’s economy has struggled to recover from the coronavirus pandemic, and the government’s zero-COVID policy, which resulted in strict lockdowns across the country, had quite a negative impact on the economy. However, now that the country has begun to ease its coronavirus restrictions and lifted lockdowns in major cities, the economy is expected to bounce back as production hubs such as Zhengzhou resume operations.
The report noted that economic rejuvenation in China would also be spurred by growth in the local property market through looser homebuyer restrictions and increased credit extension to real estate developers. These measures may stabilize investment in China’s real estate market and the housing market in general, allowing consumer demand to turn to products such as gold.
The council stated that while gold would remain a valuable risk into 2023 due to geopolitical flare-ups, a “soft landing” that allowed countries to avoid sliding into recession could be more beneficial to risk assets and harmful to gold. Extraction companies such as Freeport McMoRan Inc. (NYSE: FCX) are likely monitoring these developments closely in order to tweak their projections for the coming year.
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