2022 hasn’t been an awesome year for gold.
At least not in U.S. dollar terms.
But as I showed you last Thursday, gold has actually held up fine against nearly every other major currency.
And I believe it presents a bright spot for U.S. investors in 2023, too.
There are four main factors that could boost the price of gold next year.
In today’s essay, we’ll break them down one by one. And I’ll give you a simple way you can position yourself for profits.
Catalyst No. 1: Central Banks Keep Buying Gold
Central bank demand for gold hit a 55-year high in 2022. That’s according to figures from the World Gold Council.
You can see in the chart below how central bank demand hit nearly 700 tons of gold in 2022. That’s up by 383% compared to 2021.
We think this trend will continue.
Countries outside the main G7 in particular have bought gold as a way to diversify their U.S. dollar exposure. (The G7 countries are Canada, France, Germany, Italy, Japan, the U.K., and the U.S.)
And even if the dollar weakens, they are likely to keep doing this. That means one major source of gold demand will remain in play.
Catalyst No. 2: Global Recession
Many Eurozone countries are in recession because of high inflation. And they are experiencing especially high natural gas prices as we head toward winter.
The International Monetary Fund (IMF) recently cut its forecast for global economic growth as a result.
The U.S. could be heading for a recession because of the combination of persistent inflation and higher rates for borrowers, too.
This could be positive for gold. Why?
Because generally, during a recession, riskier assets come under pressure. That includes stocks and high-yield bonds.
On the flip side, prices for hard assets, like gold, tend to rise. That’s because they represent a safe-haven, wealth-creation investment.
And according to analysts at my former employer, Goldman Sachs, there’s a 30% chance of a recession. It would be accompanied by substantial rate cuts to zero by 2025. And that would see the price of gold jump to $2,250 an ounce.
Catalyst No. 3: The U.S. Dollar
The U.S. dollar rose through much of 2022. That’s what our next chart below shows. It tracks the U.S. Dollar Index (DXY).
That index measures the U.S. dollar against a basket of major global currencies. As you can see, the Dollar Index currently sits near a two-decade high…
This is largely due to the pace of the Fed’s rate hikes relative to hikes from other major central banks.
Meanwhile, the U.S. economy and labor market have held up relatively well so far, despite high inflation. This has given the Fed more leeway to aggressively hike rates, which has strengthened the dollar.
The federal funds rate is at 3.75-4%. This is higher than rates in the U.K., which the Bank of England (BoE) has set at 3%. And it’s higher than euro rates, which the European Central Bank (ECB) just raised to 1.5%.
But we see the labor market showing signs of weakening. Last month’s figures showed an uptick in the unemployment rate from 3.5% to 3.7%.
Plus, if inflation even drops a little more, it could give the Fed a reason to enter Stage 1 of its pivot.
A slower pace of rate hikes would mean a weakening dollar. And that’s good for gold prices relative to the dollar.
Catalyst No. 4: Investors Are “Over” Rate Hikes
Central banks like the Fed, ECB, and BoE have hiked rates to try and reduce inflation, but the impact has been limited so far.
The pace of inflation dropped slightly, as mentioned. But inflation remains high everywhere in the world. In the U.K., inflation is expected to hit 18%, and in Europe rise to 11%.
Rates will continue to rise while inflation remains high. But they’ll rise at a slower pace, as Fed Chairman Jerome Powell alluded to after the Federal Open Market Committee (FOMC) meeting on November 2.
This Stage 1 pivot will lower the comparative attractiveness of the dollar and U.S. investments somewhat. This will also incentivize investors to revisit gold as an asset. That will make gold prices perform well relative to the dollar.
What This Means for Your Money
In short, I believe the Fed will deploy its Stage 1 and 2 pivots to fight against a U.S. recession.
That will put pressure on the dollar, and thus boost the dollar price for gold. I expect the stock price of best-in-breed gold companies to rise as a result.
And at my Distortion Report advisory, I just recommended a gold miner that is set to benefit. It’s already up 8%, with plenty more upside potential.
Now, out of respect for my paid-up subscribers, I can’t give the name away here. But a simple way to get exposure to a rising gold price is through the SPDR Gold Shares ETF (GLD).
GLD tracks the price of gold, and it’s listed on the New York Stock Exchange. So you can buy it through your brokerage account.
Regards,
 |
Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. If you’ve been following my work, you know that I’m expecting the Fed to move to Stage 1 as early as this month. That makes now the perfect time to get in before everyone else does… and with a subscription to my flagship service, Distortion Report, you can set yourself up for gold’s coming rally.