As the attractiveness of gold as an asset class becomes increasingly under the spotlight, investment managers discuss the global outlook for gold in 2023. 

Prospects for gold investors look positive as they grasp the yellow metal's safe-haven status at a time of geopolitical worries and economic uncertainties, so figures in the sector say. But gold hasn't been a sure-fire inflation hedge, based on recent price data.  

The near-term outlook for gold remains favourable, relative to many other asset classes for a UK-based investor, David Jane, multi asset manager at Premier Miton Investors, has said. According to the multi asset manager, gold had a good year in 2022 relative to other asset classes particularly when measured in sterling. However,, when priced in dollars its annual performance for 2022 was flat. “Clearly it worked as a store of value, but as an inflation hedge it was arguably disappointing,” Jane said in a note. 

Gold is an inflation hedge in that it can hold its value over the very long term in real terms. However, in the short term it can diverge greatly. This makes it inefficient as a means of protecting portfolios against inflation when used in isolation, Jane continued. There's also a currency angle to watch: if the US continues down the tightening path and successfully gets inflation under control, sterling may weaken and therefore, gold in sterling terms may perform well, he said.

This news service examined a number of commentaries about gold from the wealth management world after what had been a bad year for stock and bond investors in 2022, compounded by inflation rising to the sort of double-digit amounts not seen since the 70s snd 80s. With central banks raising rates – but still not above inflation rate levels – rates are still negative in real terms, which is painful for those who hold cash. In this sort of environment, gold can remind investors why it matters. 

Some industry figures think that 2023 is set fair for gold. 

Ross Norman, CEO at Metals Daily, said in a social media post on LinkedIn: “We see 2023 being a ‘goldilocks’ year for gold … not too hot and not too cold. Central to understanding gold will be movements in the US dollar – and we’re mildly bearish about the dollar, given that we are more sanguine than most about expectations of a serious recession. By extension, as the macro improves, so should gold. After two static years, we expect gold to perform positively as headwinds turn into tailwinds, with the possibility of seeing a triple-top all-time high. That’s to say we see scope for gains, but not outrageously so,” he continued. The top three drivers for the gold price in 2023 are the dollar, interest rates and Asian demand."

Mumbai-based Metal Focus principal consultant Chirag Sheth also believes that the global gold market demand will be fairly robust in 2023, compared with 2022. 

Like other analysts, he said at a conference organised by the Malaysia Gold Association this month that demand from China is expected to grow, following the reopening of the country’s economic activities this year. Demand in India will also continue to grow, he added. Nevertheless, he believes that the price of gold will continue to be volatile throughout the year due to geopolitical tensions and global inflation rates.   

Surging
According to Finbold, the value of gold is continuing to surge to unprecedented heights, despite facing economic headwinds while retaining its status as the ultimate store of wealth. The growth has resulted in gold controlling a significant market cap compared with selected banking entities.

Data acquired and calculated by Finbold this month indicate that gold accounts for a market capitalisation of $12.34 trillion. The valuation is at least six times more compared with the combined market cap of $2.03 trillion controlled by the world's 10 largest banks, the firm said in a statement.

According to the firm’s research report, gold's significant market capitalisation complements the asset's historical status as a safe haven for investors seeking to protect their wealth against economic and political uncertainties. Notably, the reputation has been put to the test over the past year as the global economy continues to face uncertainty arising from inflation, interest rate hikes, and the lingering threat of recession, it added.

Looking ahead, the firm believes that gold is likely to sustain its significant market cap as banking stocks continue to face volatility from the declining economic conditions.

Rate debate
Premier Miton Investors' Jane thinks that it is more likely that the Fed will pause too early and inflation will remain higher for longer, with real rates still too low. If that occurs, then gold may perform well in dollar terms and its performance in sterling will be a function of how successful the UK is at getting its own inflation under control. 

Therefore, he thinks that the near-term outlook for gold remains favourable, relative to many other asset classes for a UK-based investor. From a portfolio management perspective, gold, like other real assets, may play an increasing role in coming years, he added. Premier Miton Investors has a material investment position in gold and other commodities.

“With global government debt now at unprecedented levels, the only practical way of reducing it is inflation and negative real interest rates. In such an environment gold and other commodities may be amongst the more attractive asset classes, even though many multi asset managers do not even consider them currently,” Jane said.