Gold Set To Shine In 2023: Here’s Why You Should Invest Now (NYSEARCA:GLD)

Gold Set to Shine in 2023

If you’re seeking opportunities to invest in the gold and silver industry, you’re in luck. In 2023, there are several factors that suggest gold and gold miners may be successful investments and outperform the general markets. Factors likely to impact the price of gold in 2023 include an increase in central bank purchases, rising jewelry demand, and limited gold mine supply.

Gold miners (GDX), in particular, can provide investors with leverage to gold prices and the possibility of strong risk-adjusted returns. Despite a challenging year in 2022, gold miners are currently undervalued according to various valuation metrics and have strong financial foundations, carrying the lowest debt and most cash on the balance sheets in years.

Don’t miss the chance to potentially earn money in the gold and silver sector. Continue reading for more information, including:

• A review of gold’s 2022 performance.

• The factors that may drive gold prices higher in 2023.

• Gold price targets for 2023.

Gold and Gold Miners: A 2022 Recap

The price of gold (NYSEARCA:GLD) has decreased by -1.2% year-to-date as of December 29th, while the gold miners index and junior miners have performed even worse, returning -7.42% and -12.02% YTD.

Despite this underperformance, gold and gold miners have held up better compared to other assets such as the Dow Jones and S&P 500, which have returned -9.25% and -19.83% YTD respectively.

Asset	YTD performance
Gold	-1.2%
Gold miners	-7.42%
Dow Jones	-9.25%
S&P 500	-19.83%
Bitcoin	-64.24%

Click to enlarge

So, gold and the miners actually held up pretty well compared to other assets, especially cryptocurrencies like bitcoin (BTC-USD).

But given the high inflation and geopolitical turmoil we experienced this year – and gold’s historical role as an inflation hedge – many investors were rightly surprised by gold’s lackluster performance.

What went wrong?

Gold did initially perform well as a safe haven following Russia’s attack on Ukraine, which caused prices to spike. But the second half of 2022 has been pretty lackluster.

One major factor that contributed to gold’s underperformance was the strong value of the US dollar, which was driven by the Federal Reserve’s aggressive actions (rate hikes and quantitative tightening).

Gold performed much better in weaker currencies. For example, gold rose by 15.5% when priced in Japanese Yen; 15.18% priced in the Euro; 9.19% priced in the Chinese Yuan; and, on a more extreme level, 71.57% priced in the Argentine Peso!

Currency	YTD Gold Price
Dollar	-1.2%
Euro	6.22%
Yuan	9.19%
Rupee	10.79%
Yen	15.18%
A. Peso	71.57%

Click to enlarge

[Note: Data pulled on Dec. 30, 2022 from GoldPrice.Org]

In addition, gold’s price performance might have been slightly impacted by increased competition from other safe-haven assets that offered a yield, such as iBonds (which once paid out north of 9% due to higher inflation), US treasuries, and high-yield savings accounts (some of which now pay 3% or more).

5 Gold Price Drivers in 2023

Despite the somewhat weak performance in 2022, there are many reasons to believe that gold will produce stellar returns in 2023.

Here are three key bullish price drivers for gold in 2023

1. New central bank purchases (especially from China)

This is the #1 thing to watch in the gold markets in 2023 in my opinion.

Central banks around the world, particularly in China, Turkey, and India, have been buying gold at a record pace. This trend has been going on for the past 13 consecutive years, but recently the pace has accelerated. They have been increasing their gold reserves in recent years as a way to diversify their foreign exchange holdings and reduce reliance on the U.S. dollar.

According to the World Gold Council, year-to-date gold demand from central banks is at 673 tons, surpassing all annual totals since 1967!

In the third quarter of this year, global central banks significantly increased their purchases of gold, reaching a total of almost 400 tons. This is the highest amount of demand from this sector in the World Gold Council’s records dating back to 2000, and almost double the previous record of 241 tons in the third quarter of 2018! It also marks the eighth consecutive quarter of net purchases, bringing the year-to-date total to nearly 700 tons, which is higher than any other full-year total since 1967 (when the US dollar was still backed by gold).

According to a report from the World Gold Council, central bank purchases are largely driven by a flight towards safer assets due to rising inflation. In November, the People’s Bank of China announced that it purchased 32 tons of gold at a price of around $1,650 per ounce. This is the first time the central bank has announced a change in its gold reserves since September 2019.

This trend is expected to continue in 2023, which could contribute to an increase in gold prices.

Nicky Shiels, head of metals strategy at MKS PAMP, recently stated that “as deglobalization accelerates, non-G-10 nations are expected to ‘re-commoditize’ and ramp up gold holdings; the de-dollarization narrative is gaining traction.”

2. A rebound in jewelry demand

Gold jewelry demand was strong in the third quarter of 2022, with consumption reaching 523 tons, according to the World Gold Council. This represents a 10% year-over-year increase despite a deteriorating global economic environment.

On an annual basis, gold jewelry demand has ranged from 840 to 2,100 tons over the past decade, with an average of about 1,500 tons per year.

As China relaxes COVID-related restrictions and reopens its economy, demand for gold jewelry is expected to increase further. China is currently the largest gold jewelry market in the world, accounting for nearly 700 tons annually (based on the most recently available 2021 statistics).

Most analysts expect the Chinese economy to fully reopen by mid-2023, and there are even reports that it has already started to reopen.

Gold jewelry demand in China is driven by cultural practices and the growing wealth of the middle class, which sees owning gold as a sign of good financial foresight and a promise of good fortune,

In China, the demand for gold jewelry is influenced by cultural beliefs and the increasing prosperity of the middle class. For many in China, owning gold is seen as a way to demonstrate good financial planning and to bring good luck. You can bet on the Chinese people increasing gold holdings in 2023.

3. Limited new mine supply

Gold mining accounts for about 75% of the annual gold supply, so the availability of gold is largely dependent on mining output. However, global mine production has been stagnant in recent years and appears to have peaked in 2018.

According to the World Gold Council, the total gold supply increased slightly (by 1% year-over-year) to 1,215 tons as of the third quarter of 2022. While mine production levels have increased since 2008, the council also notes that “substantial new discoveries are increasingly rare.”

Finding high-grade, profitable gold projects is becoming increasingly difficult, and the economic feasibility of gold projects is also being challenged by rising inflation, which increases the costs of building and operating a mine.

For example, check out a chart of the gold mining industry’s all-in sustaining costs by year, recently topping $1,250/oz.

This trend of stagnant or declining gold output (aka “peak gold,” which is the highest rate of global gold mining, after which mining rates will slowly decline) is expected to continue in 2023, which could lead to a tightening of supply and potentially drive up gold prices

4. Federal Reserve’s eventual pivot to rate cuts

The Federal Reserve has been increasing interest rates at the fastest pace in recent history. But it is expected to switch to cutting rates in the coming years. Some analysts predict that this could occur as soon as late 2023, as the economy recovers from the COVID-19 pandemic and potentially faces other challenges, like a recession.

Lower interest rates are generally seen as positive for gold prices, as they reduce the opportunity cost of holding gold (which does not pay interest) and make it more attractive to investors.

Interest rates are one of the main factors that can influence the demand for gold, as they can affect the attractiveness of gold as a store of value or a hedge against inflation. When interest rates are low, investors may be more likely to purchase gold as a safe haven asset, which can drive up its price.

5. Weakening U.S. dollar

Gold prices and the value of the US dollar tend to move in opposite directions. When the value of the dollar declines, gold prices often rise.

The dollar has been weakening recently, and this trend is expected to continue in 2023, which could lead to an increase in gold prices.

According to analysts at Wells Fargo, the dollar is likely to remain strong in the early part of next year, but it is expected to depreciate during the second half of 2023. As market participants anticipate the possibility of monetary policy easing in the US, they believe the dollar will start to weaken in mid-2023.

“As the Federal Reserve ends its tightening cycle and US economic trends worsen, we believe the dollar will enter a period of cyclical depreciation and weaken against most foreign currencies for the remainder of next year,” said the analysts, as reported in FXStreet.com “We anticipate that dollar weakness will be broad enough such that most G10 and emerging market currencies can strengthen against the dollar over the course of 2023.”

Other potential (but less certain) drivers of the gold price in 2023 include:

The escalating war in Ukraine

There are concerns about the possibility of an escalating conflict in Ukraine, especially in light of recent tensions. While Ukraine has been making progress and pushing back against Russian troops, Russian President Putin has indicated that he will not end the war.

In addition, several reports indicate that Putin plans to resume intense fighting in the spring of 2023. Further fighting and conflicts could create uncertainty and instability in the global economy, leading investors to seek safe-haven assets like gold to protect their wealth.

The potential Chinese invasion of Taiwan

There are concerns that China may invade Taiwan, which could cause further destabilization and uncertainty in the global markets and increase investment in gold. US officials are becoming increasingly worried about the possibility of a Chinese attack on Taiwan, with some in the intelligence community even suggesting that it could happen as soon as 2024 (or possibly earlier).

If a war between China and Taiwan were to occur, it would likely have a significant impact on commodity prices, particularly precious metals like gold and silver, base metals like copper, nickel, and zinc, and oil and gas.

Gold Price Targets for 2023

Now that we’ve evaluated the key drivers behind a rise in gold prices next year, where are gold prices likely heading in 2023? I pulled some of the most notable gold price predictions I could find on the web, and provide my own thoughts below.

• Société Générale – $1,550

• Fitch – $1,600

• ANZ – $1,650

• Trading Economics – $1,711

• Reuters – $1,750

• Wallet Investor – $1,898

• ABN AMRO – $1,900

• Commerzbank – $1,900

• Wells Fargo – $1,900 – $2,000

• Saxo Bank – $3,000

• Gov Capital – $3,100

• Swiss Asia Capital – $4,000

Price targets are all over the place, ranging from $1,550 to $4,000.

More than likely, prices will trade in the middle of these targets, but it will likely be a bumpy, volatile ride throughout the year.

Personally, think gold will likely trade in a range between $1,800 to $2,000 per ounce in 2023, but finish the year above $2,000 after the Federal Reserve pivots and cuts rates (which I think is possible by mid-year to year-end).

So, if I had to give a specific price target, I think gold could rise by 10% or more, indicating a price target of about $2,000, in line with Wells Fargo’s prediction.

Considering that gold has returned 8% per year for the past 20 years, I don’t think this is an outrageous prediction by any means.

If gold prices were to increase by 10%, it would likely have a positive impact on gold mining stocks. These stocks tend to see their margins expand when gold prices rise, as they are closely tied to the price of gold. It’s possible that shares in individual miners, as well as in royalty and streaming companies, developers, and explorers, could increase by 20% to 30% or more if the predicted rise in gold prices occurs.

A word of caution: It’s worth noting that predicting gold prices can be difficult due to high market volatility and the potential for unexpected events. Analysts and algorithms may not always be accurate in their short or long-term forecasts, so it’s important to conduct your own research and consider the latest market trends, news, technical and fundamental analysis, and expert opinions before making any investment decisions.

Gold in 2023: A Summary

The performance of gold in 2022 was relatively strong compared to other assets like general stocks and cryptocurrencies. But it was still a disappointing year with a negative return priced in US Dollars, and mining stocks faring even worse due to their leverage.

Factors such as the strong value of the US dollar and increased competition from other safe-haven assets with a yield likely contributed to gold’s underperformance.

However, there are several reasons to be optimistic about the outlook for gold in 2023. Central banks around the world have been buying gold at a record pace, which could drive up demand and prices. And China has officially reported its first gold purchases in 3 years and will likely increase holdings in 2023. I’m also expecting higher jewelry demand from China after it completely re-opens its economy. In addition, the potential for ongoing geopolitical tensions and economic uncertainty may lead investors to seek gold as a safe haven asset.

I believe gold could rise by 10% or more in 2023, and gold-focused stocks that provide leverage to gold will perform even better. So, I plan to increase my exposure to precious metals in the coming months (patiently waiting for a sell-off for a better buying opportunity), although I think other commodities (silver, copper, oil, and nickel) will also perform well in 2023.