Gold was first discovered by the ancient Egyptians over 4,000 years ago, and human fascination with its mysterious beauty continues to this day. In the 21st century, gold is valued not only for its industrial uses, but also as investment asset to store value, hedge against inflation and search refuge in times of uncertainty.
In 2020, for example, the gold price hit a record high of $2,074 per ounce amid pessimism caused by the global pandemic. In 2022, the yellow metal climbed above $2,000 again when Russia invaded Ukraine in late February.
Post-pandemic, gold market discourse has been driven by the contrasting effects of a inflation And central banks – notably the American Federal Reserve (fed) – raise interest rate to combat soaring consumer prices.
What is the outlook for the gold market and is gold a good investment in 2023? In this article, we look at the key market drivers and some analysts’ opinions on where prices could be headed.
What are the main use cases for gold?
Gold is mainly used in jewelry and as an investment vehicle. World Gold request jumped 11% in 2022, reaching its highest level in more than a decade, driven by exceptional investor appetite, according to the World Gold Council.
Investment demand for gold reached 1,107 tonnes, an increase of 10% year-on-year. At the same time, jewelry consumption – one of the largest components – fell 3% to 2,086 tonnes, and demand for gold bars and coins increased to 1,217 tonnes.
Jewelry is also often used as a form of physical gold investment. This is particularly popular in China and India, the world’s two largest markets, where consumers invest in gold jewelry to store their wealth and give it as gifts at festivals and weddings.
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Gold as an investment
Gold has served as a long-term store of value for thousands of years and has often been used as a means of payment. Some investors choose to hold around 5-10% of their portfolio value in the form of gold, whether in physical bars and coins or in instruments such as exchange-traded funds (AND F), has to diversify their assets and potentially protect themselves against crashes in the value of actions, obligations Or Fiat money.
Gold is denominated in U.S. dollars, which means its price tends to move in the opposite direction, making it a potential hedge against a decline in the relative value of the global reserve currency. It also tends to gain value as an investment during times of inflation and periods of uncertainty caused by geopolitical instability or other world events.
While other precious metals are also used as portfolio hedges, investing in gold has the advantage of high returns. liquidity. This could allow investors to quickly exchange their gold for cash at any time. Buying gold online has become increasingly accessible to investors.
Gold jewelry, coins and bars are ways for investors to pass on their wealth as an inheritance and are an alternative to owning gold stocks.
In the meantime, it should be noted that investing in any financial instrument, including gold, involves risks. Therefore, no asset can be considered safe. You should always do your own research. Keep in mind that past performance is no guarantee of future returns. And never invest more than you can afford to lose.
What drives the gold market?
The gold market gained bullish momentum in the first month of 2023, increasing by more than 7% in January, supported by the reopening of China and therefore the expected resilience of demand. Yet since then, the precious metal has retreated to a five-week low, crashing to $1,848 on February 14.
“If you look at where gold is trading today compared to three months ago, you’ll probably be more comfortable with its potential to be a good investment for 2023,” said Daniela Hathorn, an analyst at market at Capital.com.
She noted that in 2022, “the weight of high inflation and tight monetary conditions has pushed gold prices to their lowest level in two and a half years”, with investors preferring higher yielding instruments. high – like bonds – to gold which yields nothing. . Daniela added:
“The landscape has changed over the past three months, mainly due to the start of the disinflationary period which has led to fears of a recession in 2023. This has allowed gold to rebound by 20% from the lows of November 2022 , but since the beginning of February 2023. , it has retreated significantly, meaning that the move from the November lows to the current price has fallen to just over 13%.
The US inflation rate stood at 6.4% in January 2023, falling for the seventh consecutive month and signaling disinflation in the American economy. The US Fed, for its part, increased interest rates by 25 basis points (bps) at the February meeting – unlike the aggressive rates of 50 and 75 basis points implemented in 2022.
At the same time, the latest U.S. jobs data surprised on the upside, with more than a million jobs added to the economy and an unemployment rate of 3.4%, the lowest for decades, in January. Daniela explained:
“The current problem for gold is that the latest data has shown unexpected resilience that has caused market participants to rethink their views on the outlook for the US economy, shifting from a recession mentality to potentially a “no landing” scenario, meaning inflation will decline slowly without growth being hampered in the process, which has caused gold to decline.
Is gold a good investment in 2023?
Is now a good time to buy gold and hope for a price rebound? Commodities analysts have been cautious about answering this question in the current interest rate environment. Analysts at Australia-New Zealand Bank (ANZ) noted on February 9:
“Gold is benefiting from the weakening dollar and expectations of a reduction in monetary tightening by the Fed. Inflation remains well above the Fed’s 2% target range, and the dollar’s direction could reverse if there are hawkish comments from the central bank. We expect a price correction in the short term.
Analysts predict that gold will fall to $1,730 by the end of the first quarter of 2023 and rise to $1,900 by the end of 2023. However, the price may then decline slightly to an average of 1,895 $ in 2024.
Analysts at Canadian investment bank TD Securities were pessimistic about the outlook for gold in the first quarter of 2023:
“Despite the recent rally, a continued strong rise in US real and nominal rates along the short end of the curve should drive gold towards $1,575 per ounce in the first quarter of 2023. The yellow metal may well begin to increase towards $1,800+/ounce after the first quarter, as it becomes clear that the Fed is nearing the end of its tightening cycle and the market begins to see cuts on the horizon.
Gold could rebound from $1,800 at the end of 2023 to $1,900 at the end of 2024 and on average to $1,875 in 2025, according to the bank’s November 2022 2023 outlook report.
However, analysts at the UK-based company Chartered standard continued “to view gold as a core asset and key portfolio diversifier…we expect the physical market to take over from here as we enter the strong seasonal period of the consumption. The recent escalation of the Russian-Ukrainian conflict is likely to generate safe-haven flows into gold, keeping it well supported. Looking ahead 12 months, we believe gold will rise as bond yields moderate and the dollar declines.
According to Daniela from Capital.com, the outlook for gold will remain dependent on US economic data and investor sentiment:
“If the data points to a resilient US economy, characterized by slow disinflation coupled with resilient employment and GDP data, expect gold to struggle… If instead, Data continues to point to economic difficulties that are forcing the Fed to ease. Due to tightening monetary policy, gold is then expected to resume its upward trend towards $2,000 per ounce.
When considering whether gold is a good investment right now, it is important to remember that financial markets remain extremely volatile, making it difficult to accurately predict what the price of gold will be in a few hours, and even more difficult to give long-term estimates. As such, analysts can and do be wrong in their forecasts.
We recommend that you always do your own research. Watch the latest market trends, news, technical And fundamental analysis and a wide range of expert comments before making a business decision. Note that past performance does not guarantee future returns. And never trade more than you can afford to lose.
Is gold a good long term investment?
It’s important to do your own research to determine if gold is a good fit for your investment portfolio. This will depend on your risk appetite, the composition of your portfolio, your investment objectives and the amount you intend to invest, among other factors. You should never invest money that you cannot afford to lose.
When is the right time to buy gold?
The best time to invest in gold will depend on your investment strategy, risk tolerance and portfolio composition, among other factors. Always do your own market research.
Should I invest in gold now?
Whether gold is currently a suitable investment for your portfolio will depend on your personal circumstances and risk tolerance. Do your own research. And never invest money you can’t afford to lose.
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