The World Gold Council (WGC) is a development organization for the global gold market with the primary aim of sustaining gold demand across all industry sectors. The organization provides investors with a comprehensive view of gold’s performance in a global context regarding macroeconomics, demand influences, political conditions, and other factors. WGC’s outlook from the end of 2022 shows market predictions for the coming year across three major scenarios.
The first scenario shows a potential shallow, short-lived recession impacting numerous developed markets. Second, this recession could materialize further into a global affair, impacting widespread markets. The final scenario takes the opposite approach of the first two, showing the potential of successful inflation softening from central bank efforts, easing economic conditions without causing a recession.
If either of the first two scenarios plays out, gold will likely have an excellent year. Gold typically performs best during recession periods. Depending on how widespread the recession becomes (if it happens), the gold market could explode nationally or globally.
The worse the recession, the more investors flock toward gold as a safe haven. If a recession does not occur, gold demand from the jewelry and technology sectors will likely increase, allowing its performance rates to level out. The World Gold Council does not see any large risks in gold’s performance in the coming year, considering the world’s current economic environment.
Gold investments began spiking in 2020 with the COVID-19 pandemic. By the end of 2020, gold had increased by 25% from the year prior. A large supporting factor in this growth was gold exchange-traded funds (EFTs).
Investors purchased nearly $50 billion in total in gold EFTs in 2020. EFTs, coupled with physical gold purchases, created the perfect environment for gold to excel. Western and Eastern nations alike flocked toward gold to reduce their portfolio risks and protect their purchase power.
Investors aren’t the only ones stocking up on gold. Central banks around the globe have also been building their gold reserves to protect the nation’s finances amid climbing inflation rates. In 2022, central banks purchased a total of 1,136 tons of different precious metals, depicting the largest total purchase amount since 1967.
Gold offers low volatility compared to most other asset classes, making it a popular investment choice during economic uncertainty. Because of gold’s widespread mining, supply levels survived the severe labor and production shortages of 2020. Gold mines continued producing across every continent (minus Antarctica) amid the pandemic, satisfying demand at a low enough rate to keep prices competitive.
So what are the other gold demand sectors aside from investment portfolios? Gold serves a few critical purposes in modern society. While the precious metal helps investors and central banks protect their wealth, it also plays a critical role in the jewelry, industrial, electronic, and automobile industries.
Jewelry is gold’s largest demand sector, accounting for approximately 50% of all demand. Aside from its well-renowned status as being one of the most luxurious materials for jewelry, there’s a reason jewelers began using gold.
Gold has low reactivities to oxygen, water, and acid, allowing it to maintain its luster without tarnishing when coming in contact with various substances. Gold is also malleable and ductile, making it highly suitable for jewelry production.
Another gold demand sector is electronics, with about 80% of the demand coming from the technology sub-sector. People around the world rely on smart technology, electric vehicles, and other devices that require electronic components with reliable conductors. Gold is an exceptionally high-quality and reliable conductor because of its corrosion resistance, making it the preferred material for many technologies.
Gold’s distinctive physical and chemical properties create intrinsic demand in both the jewelry and electronics industries, which typically grows when the economy succeeds and businesses can expand. Conversely, the investment and central bank demand sectors flourish when the economy suffers and governments and investors alike enter gold-buying frenzies to protect their finances. Ultimately, gold demand and prices remain safe, regardless of economic conditions, due to the expansive and flexible demand from multiple industries.
Gold’s scarcity and complex mining processes allow it to always remain in demand. With the expected poor economic conditions in the coming year, many analysts predict more gold price increases throughout 2023 and beyond. Gold typically performs well long-term, though, for this year, investors may also see short-term yields.
Predictions from the London Bullion Market Association survey show gold increasing by 3.3% in 2023 to $1,859 per ounce by the end of the year.
As always, investors should consult their financial advisors before making portfolio decisions.