We’re past the halfway point of 2022, time seems to move very quickly in the gold investment market. With this in mind, we thought now is an opportune moment to analyse the performance of gold in 2022 and examine the market forces that have impacted the price trends of the yellow metal.
In this article, we will also look forward to what we can expect from gold in the second half of 2022 and project ahead into 2023.
Gold remains stable, but silver ails
2022 has been a challenging year across most forms of investment. Rising interest rates and high inflation have combined to create a cost-of-living crisis in the UK as geopolitical risks mount. This environment has sustained a high demand for the precious metal as a hedge against a tough economic outlook. We predict that investors will continue to look to gold as a strong store of wealth into H2 and 2023.
Even in far from ideal circumstances, gold has remained stable throughout 2022 so far. It continues to be one of the best performing assets of 2022 according to the World Gold Council, with the yellow metal up 9% in H1.
We know from historical data that gold performs well during periods of high inflation. It isn’t necessarily a surprise that this precious metal has been able to ride out the wave that has seen so many other forms of investment sink. Consistently elevated inflation has led the Bank of England to raise the base rate five times since November 2021, across the Atlantic the U.S Fed has raised its rates 1.5% this year alone.
Silver on the other hand isn’t riding quite so high. With greater industrial use, silver has fallen 5% across the year.
Platinum and palladium meanwhile have seen positive price movement, up 2.6% and 11.7%. With reduced supply stemming from sanctions to Russia demand and hence price is up.
Precious metals are known as safe haven investments. They remain in high demand for investors during high inflation with a potential recession on the way as early as quarter 1 (Q1) 2023.
How have other forms of investment fared?
H1 2022 was the worst half year for stock markets in more than 50 years. The aforementioned fears over rising interest rates and a potential recession has created a landscape where many investment assets have underperformed this year.
The FTSE 250 is down more than 20%, while Europe’s STOXX 600 has declined 17% and Asia’s MSCI is down a whopping 29%.
In the US the S&P 500 has fallen more than 20% in 2022, which is its poorest return since 1970. The Dow Jones meanwhile has dropped 15% and the Nasdaq has lost over 30% this year, another record low performance.
Cryptocurrency struggles in H1 2022
Cryptocurrencies are another asset class that has had a bad first half of the year. After a false dawn in March, Bitcoin’s value has halved, and Ether the cryptocurrency of the Ethereum blockchain has fallen 70%.
With riskier investments, including cryptocurrency, and stocks underperforming many investors will consider this to be an opportune moment to balance their portfolios with assets that thrive during inflation and stagflation.
We wrote earlier in the year how gold can help offset the volatility of cryptocurrency.
What lies ahead for gold in 2023?
There are many factors that contribute to a high gold price that could see the precious metal continue to outperform other assets throughout 2022 and 2023. We’ve picked out three of the most prominent:
Stagflation is looking increasingly likely in the current environment. Stagflation is defined as persistently high inflation coupled with low economic growth and high levels of unemployment. The last significant instance of stagflation was in the 1970s. We are already experiencing lasting inflation and low growth. If a recession strikes, high levels of unemployment will be the final missing piece of the puzzle leading to stagflation.
Historical data shows us that gold performs better than other asset classes during stagflation. In 2022, commodities have fared well alongside gold, however this is strongly influenced by the war in Ukraine and resulting supply chain chaos.
1. Gold historically fares well during stagflation
Stagflation is looking increasingly likely in the current environment. Stagflation is defined as persistently high inflation coupled with low economic growth and high levels of unemployment. The last significant instance of stagflation was in the 1970s. We are already experiencing lasting inflation and low growth. If a recession strikes, high levels of unemployment will be the final missing piece of the puzzle leading to stagflation.
Historical data shows us that gold performs better than other asset classes during stagflation. In 2022, commodities have fared well alongside gold, however this is strongly influenced by the war in Ukraine and resulting supply chain chaos.
2. Demand for gold is rising
The demand for our favourite precious metal is rising. COVID-19 induced economic uncertainty and the war in Ukraine has led to more investors than ever choosing to hedge their bets with gold purchases.
This demand is keeping the price of gold high. Central banks are having an effect too, as around the world banks are bolstering their gold reserves in a bid to prop up their economies. In April alone, central banks bought 19.4 tonnes of gold.
3. The war in Ukraine rumbles on…
As well as economic downturns, geopolitical crises fuel upwards trends in the price of gold. Since Russia’s invasion of Ukraine, uncertainty has reigned, sanctions have been imposed and commodities have been restricted.
NATO Secretary-General Jens Stolenberg has issued a dire warning that the war could go on for years.
This plus ongoing tensions between Europe and Russia, the US and Russia and the US and China will continue to prompt investors to seek safety in gold.
Will we see a recession in 2023?
A recession in 2022 has so far been avoided, although it is still possible if GDP falls in Q3 and Q4 of this year. Many economists are predicting that a recession will most likely happen next year.
A survey by the Financial Times, asked economists whether they thought the economy would plunge into recession in 2023. Significantly, 38% said they thought this would occur in Q1 or Q2, a further 30% suggested a recession to be probable in Q3 or Q4.
A recession is bad news for anyone, however the mitigation for gold investors is that the gold price has consistently risen in times of recession. This was reflected after the stock market crash 2000-2001 and the recession of 2008.
Buy recession-busting gold and diversify your investment portfolio
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