Will Gold Soar in 2023?

Answering your gold questions: “How to buy gold and make sure of its purity?”; “Gold: what is its economic importance?”; and “What can gold expect in 2023?”

Will This Be the Year for Gold?

TFraditionally, in times when inflation erodes away the value of our money, gold’s allure is renewed, and its prices rise. In mid-January this year, the Consumer Prices Index (CPI), which measures the rate of US inflation, was holding (after some recent progress) at 6.5%, but even inflation of 2% a year could cut the value of your money in half within 36 years. 

In 2022, when inflation climbed to near 10% in many parts of the world, we might have expected gold prices to soar, but this was not the case. Gold mining shares slumped by more than 8%, and there was a drop in demand for gold ETFs. The US Federal Reserve’s series of aggressive rate hikes brought the dollar up to new highs, sending bullion prices down by 11% between March and December. (Usually, a strong dollar means weak gold prices, because dollar-denominated commodities are more pricy and less appealing.)

Things only started to turn around at the start of November, when gold prices proceeded to pick up 15% within ten weeks. Money flowing out of gold ETFs slowed its course, and the GDX Gold Miners Index outshone the S&P 500 by almost 15% in November, and then by 4.6% in December. 

Join us now, especially if you’d like to start gold trading with iFOREX in CFD form, as we tackle the Fquestion of, “Gold: What is its economic importance?”, but we’ll also review some recent gold price trajectories.

Gold: What is its Economic Importance?

Gold has sometimes been used as a medium of exchange, but it’s also used as a means of storing value. Otherwise, it’s sought after in the jewelry market. When it comes to preserving the value of money in inflationary times, people consider putting it into the metal that doesn’t tarnish because they believe its value won’t suddenly be drained away. If its physical gold you’re after, you’ll have to brush up on how to buy gold and make sure of its purity. There are, however, other ways to expose your money to the precious metal, for instance by means of gold mining stocks or gold ETFs. 

If you choose to start gold trading with iFOREX, both of these methods will be available to you through CFDs (Contracts for Difference), which give you the power to trade in the volatility of commodity prices without having to actually purchase and store gold bullion bars or barrels of oil. 

December

A week into December 2022, spot gold was worth $1,795.83 an ounce after having gained 10% within only five weeks. The driving force was the expectation the Fed would loosen monetary policy after many months of tightness aimed at cooling both inflation and the labour market. Since gold doesn’t yield any interest, it tends to fall out of favour when interest rates are high, but rise again when rates drop.

In the latter third of the month, the data indicated consumer confidence was better because of improvements on the inflation front. As a result, on December 20th, the USD rose and gold dropped to settle at $1,814.07.

January

After the US inflation data came out, gold surged 1.4% on January 11th as the dollar sunk. However, “the initial gold rally post CPI… faded as investors reminded themselves that inflation needs to fall much further before the Fed can pause”, explained Oanda’s Ed Moya. The majority of Fed members believed, in mid-January, that interest rates would need to stay elevated before inflation is sufficiently tamed. 

On January 19th, a bearish mood reigned due to weak company earnings reports and news of layoffs. Concerns about a recession resurfaced, and gold benefited, rising to its highest in about nine months. Rhona O’Connell of StoneX, however, suggested that “Gold is overbought and needs to correct”, and she said that if it touches the $2,000 mark “in the near future, then it would almost certainly be a case of ‘blink and you miss it’”. Meanwhile, the strong labour market, not to mention the comments of the Fed’s Vice Chair Lael Brainard, indicated rates would have to be kept high for a sustained period.

Gold in 2023

Presuming that, in the middle of January, we were holding about five months before the peak of US interest rates, history indicates the next half-year could raise gold prices by as much as 18%. Six times out of ten, recessions follow on the heels of rate peaks within a year-and-a-half, and these are good times for gold too. In fact, gold normally outperforms the S&P 500 by 26% during recessions.

For those who have their eyes on physical gold bars, we’ll just add a brief note on how to buy gold and make sure of its purity. Ideally, you should choose bars with a minimum of 99.5% purity, and these can be most easily obtained online. Normally, gold coins offer a lower level of purity than bars, and gold jewelry is even less pure.