2022 Is Textbook Example of Gold Being a Safe Haven

Gold's flat performance in 2022 has been recognized by the World Gold Council (WGC) as a strength. After all, the S&P 500 fell nearly 20% last year.

To summarize WGC's latest commentary on gold, 2022 was good for the gold market, and 2023 could be even better.

The fact that the last year was positive for the yellow metal might be counterintuitive. After all, as the chart below shows, the price of gold was in a downward trend for most of 2022.

From early March to early November, the yellow metal slid from $2,039 to $1,629, a decline of 20.1%.

Gold Prices in 2022-23

However, the price of gold reversed this downward trend in November, jumping to $1,754 by the end of the month. In December, the rally continued, and that last-minute surge took gold to $1,814, allowing it to end the year without a loss.

But how could such a virtually flat performance relative to the last day of December 2021 (0.004375%) be considered good? Well, maybe because the real interest rates rose an unprecedented 250 basis points while the US dollar appreciated more than 8%.

As the WGC notes,

“The previous largest annual rise in yields was 150bps with a flat dollar. That year – 2013 – saw gold prices fall almost 30%”.

What Does Gold’s Resilience Show Us?

According to the WGC, 2022 was “a textbook example of gold’s stable and uncorrelated performance amid market turbulence.” Indeed, the U.S. stock market, measured by the S&P 500, plunged 19.4% last year.

It implies that gold was truly a safe haven and valuable portfolio diversifier during a market storm. What’s more, gold’s volatility remained close to its long-term average, something we can’t say in the case of equities.

And gold’s correlation to a 60/40 equity-bond portfolio, although higher than the average, remained low at 20, which is, in the WGC’s words,

“An indicator of gold’s characteristic as a consistently reliable diversifier during market turmoil”.

Implications for Gold

What does it all imply for the gold (and silver) market in 2023? The WGC’s previous report saw a “stable but positive outlook for gold prices”.

The latest publication confirms that the market scenario of a mild recession is playing out but “with a nod to a more severe downturn”.

It means that 2023 should be positive for gold prices. The only question is - how much? I’m usually more cautious than the perma-bull WGC, but I agree with the picture painted this time.

Hence, I expect the gold price to rise above $2,000 in the coming months, albeit not without turbulence, as the Fed will end its tightening cycle soon.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold, and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. To determine the latter, many additional factors need to be considered (i.e., sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns, and more), and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.