World Gold Council figures show that gold demand increased to its highest level in more than a decade during 2022, but the gold price still ended the year very close to where it started.
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It looks like gold had a good year if one focuses on its strong run during the last few months of 2022, but at $1 850 per ounce at the end of December, it was struggling to hold on to its modest gain of $50 per ounce over the year.
Then came a slump to just above $1 600 per ounce before it started to run to reach $1 950 a few weeks ago. Since then, it has fallen back to just above $1 800 per ounce.

Gold’s uninspiring performance during the last few years is baffling. The world limped from one crisis to the next, but investors did not flock to the safe haven of gold bars and coins as might be expected.

Covid-19, crashing world economies, China’s broadsides to tech companies that saw share prices collapse, high inflation, rising energy costs, the continuing US and China trade tensions, the invasion of Ukraine and the crash in cryptocurrencies, as well as growing political uncertainties, have had little effect.
Correlation to US
Vaughan Henkel, head of equities and research at PSG Wealth, says the key to the gold price is its correlation to US interest rates.
“Since gold does not pay dividends or interest, it is a relatively expensive asset to hold when real interest rates are high due to the higher opportunity costs of owning non-interest paying assets,” he notes.
“For this reason, US real rates have historically had a negative correlation with the gold price. The gold price tends to increase when real rates decline and decrease when real rates rise.

“In fact, the gold price has run too far during the last few months, when US rates have been increasing,” adds Henkel.

An analysis of the gold market by PSG Wealth looked at the inverse correlation between the gold price and real interest rates in the US, based on the nominal interest rate (US 10-year bonds) and inflation expectations in the US. As such, the real interest rate would depend on changes in the nominal rate, as well as changes in inflation.
Real rates would increase in the following long-term scenarios:
  • Interest rates increase while inflation remains stable
  • Interest rates increase more than inflation rises
  • Interest rates remain stable, and inflation decreases
  • Interest rates decrease less than inflation declines.
Conversely, real rates would decrease when:
  • Interest rates decrease while inflation remains stable
  • Interest rates decrease more than inflation decreases
  • Interest rates remain stable, and inflation increases
  • Interest rates increase less than inflation rises.
The gold price increased from below $1 200 per ounce in August 2018 to a high of above $2 000 in August 2020, a period during which US interest rates were falling and inflation increased. Since then, US real interest rates have increased rapidly, but the gold price held up nicely.
Gold price and US real rates

Source: PSG Wealth

PSG Wealth concludes that the current price of gold is materially higher than 20 years’ worth of data and the correlation to US interest rates imply, but that interest rates in the US are expected to decrease to the benefit gold.
The World Gold Council paints a rosier picture. It says in a recent report that demand for gold increased sharply during 2022, while supply has increased only marginally.
It says that “colossal” central bank purchases, aided by “vigorous” retail investor buying and slower exchange-traded fund [ETF] outflows, lifted annual demand for gold to an 11-year high.
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“A second consecutive quarter of huge central bank demand [417 tons] took annual buying in the sector to a high of 1 136 tons. Total annual gold demand jumped 18% to 4 741 tons, almost on a par with 2011 – a time of exceptional investment demand. The strong full-year total was aided by record demand in the fourth quarter of 2022, totalling 1 337 tons,” according to the World Gold Council.
“Jewellery consumption softened a fraction in 2022, down by 3% at 2 086 [tons]. Much of the weakness came through in the fourth quarter as the gold price surged.
“Investment demand reached 1 107 tons (up 10%) in 2022. Demand for gold bars and coins grew 2% to 1 217 tons, while holdings of gold ETFs fell by a smaller amount than in 2021 [-110 tons versus -189 tons], which further contributed to total investment growth,” it says.

Total supply increased by only 2% in 2022, to 4 755 tons. Mine production inched up to a four-year high of 3 612 tons.

Total gold supply halted two years of successive declines in 2022, lifted by modest gains in all segments. Full-year mine production grew 1% but failed to match its 2018 peak. Annual recycling supply made only marginal gains, despite strong local currency price rises in many markets.
Gold price predictions
The World Gold Council is usually careful about forecasting the gold price, only saying that the recent rally has been aided by a falling US dollar, fears around an economic recession, geopolitical risk, high inflation and central bank buying.
“In our view, many of these factors are set to continue in 2023,” it says.
“Analysts’ price forecasts appear overwhelmingly in favour of modest gains in 2023. Twenty out of 24 analysts in the most recent London Bullion Market Association (LMBA) precious metals forecast survey see the gold price rising in 2023.”
The World Gold Council gives five reasons for gold going higher:
  • A mild recession and weaker earnings have historically been gold-positive;
  • Further weakening of the dollar as inflation recedes could provide support for gold;
  • Geopolitical flare-ups should continue to make gold a valuable tail risk hedge;
  • Chinese economic growth should improve, boosting consumer gold demand; and
  • Long-term bond yields are likely to remain high but at levels that have not hampered gold historically.
As high as $4 000 per ounce?
Precious metals expert Juerg Kiener, MD and chief investment officer of Swiss Asia Capital, made news a few months ago when he predicted – in a live broadcast on CNBC – that the gold price will run to $4 000 in 2023.
“Gold prices could surge to $4 000 per ounce in 2023 as interest rate hikes and recession fears keep markets volatile,” he said.

“There is a good chance that the gold market sees a major move. It’s not going to be just 10% or 20%, but a move that will make new highs.”

Kiener based his view on the belief that many economies could face recessionary conditions that would lead to many central banks slowing their pace of interest rate hikes, making gold instantly more attractive.
“Gold is a very good inflation hedge, a great catch during stagflation and a great add onto a portfolio,” he says.

Listen to Fifi Peters speaking to DRDGold CEO Niël Pretorius about the group’s latest results (or read the transcript): 

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Gold in 2023: $1 000 per ounce, or $4 000? – Moneyweb