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The World Gold Council’s (WGC) Gold Market Outlook 2023 said gold’s performance is likely to remain stable next year as it grapples with competitive challenges from different demand drivers.
With the looming likelihood of a deeper and broader recession high, gold is expected to outperform baseline expectations.
“As the past few years have demonstrated, unexpected geopolitical events can enhance gold investment demand, as we saw in the first quarter of this year. We expect Chinese consumer gold demand to rebound to 2021 levels, thereby supporting overall gold demand and highlighting its role as a dual asset,” the WGC said.
Hedging demand
A short-term and possibly localized recession could also show signs of stagflation as economic growth slows and high inflation leads to rising unemployment. That would be negative for equity markets, as earnings have been hammered, and could drive more safe-haven demand for gold, it said.
The global economy is at an inflection point after experiencing various shocks in the past year. The biggest ones have been triggered by central banks as they step up their aggressive fight against inflation.
Looking ahead, the interplay between inflation and central bank intervention will be key in determining the outlook for 2023 and gold’s performance.
main points
The economic consensus calls for a slowdown in global growth, resembling a brief, possibly localized recession; falling — but rising — inflation; and an end to interest rate hikes in most developed markets. In this bullish environment for gold, the key takeaways from the WGC are:
• Mild recessions and weak earnings have historically been bullish for gold.
• Further dollar weakness could support gold as inflation recedes;
• Geopolitical flare-ups should continue to make gold a valuable tail risk hedge;
• China’s economic growth should improve next year, boosting consumer demand for gold.
• Long-term bond yields are likely to remain high, but at levels that have not historically hindered gold; and
• Pressure on commodities from a slowing economy could be a headwind for gold in the first half.
positive performance
Overall, this mixed effect suggests a steady but positive performance for gold.
That said, there is unusually high uncertainty surrounding consensus expectations for 2023. For example, excessive tightening by central banks could lead to a deeper and broader recession. Likewise, a sudden change in direction by central banks — halting or reversing rate hikes until inflation is under control — could leave the global economy teetering near stagflation.
Gold has historically responded positively to these environments. On the other hand, an unlikely “soft landing” to avoid a recession could be negative for gold and benefit risk assets. — trade arab news agency
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