World Gold Council chief market strategist John Reade recently revealed predictions showing current forecasts of long-term consistent returns for gold investors. Based on current market conditions, Reade expects to see around 2% to 3% increases per year, net of inflation, allowing traders to generate significant gold investment returns when carried over numerous years. Reade warns investors to expect mild returns on a yearly basis, unlike the unpredictable circumstances of 2020, leading gold to gain 25%.
“A year like 2020 is unusual. But we do think the next three years should deliver returns somewhat above our long-term expectations. The reason for that is the US may be in a rate-cutting environment, and the US dollar will be a bit weaker because of that. We’re looking for (nominal) returns, based on our core model, of 6 to 7 percent,” Reade explained.
The recent mid-year outlook released by the World Gold Council on July 6 describes the gold market as “between a soft and a hard place,” referring cleverly to how the economy may land following the Fed’s monetary policy decisions. Numerous developed central banks are reaching the end of their rate-hiking cycles, including the U.S. and Europe. Marketplace estimates still foresee a mild contraction near the end of the year, with slow economic growth occurring over time, given the lag that typically takes place between monetary policy loosening and economic stimulation.
In the context of the gold market, the World Gold Council expects to continue seeing solid support throughout the remainder of the year as the dollar weakens, interest rates loosen, economic conditions worsen, and investor demand spikes. Many analysts still expect a hard economic landing following the end of the rate-hiking cycle, which would mean positive news for gold.
For the first half of the year, gold increased by 5.4%, placing it ahead of Reade’s yearly gain prediction. A combination of risk and inflation hedging and persistent central bank demand allowed the precious metal to successfully outperform every other major asset aside from developed market stocks. As of July 19, gold futures reached $2,019.60 per ounce, breaking the psychological $2,000-per-ounce line.
During previous rate-hold cycles of around six to twelve months, gold increased by an average of 0.7% per month, which is equivalent to an 8.4% annual return. As we approach what many believe will be the end of the rate-hiking period, analysts expect gold to achieve similar gains with the opportunity costs for investors reduced.
Furthermore, if a hard landing induces more recession risks or fears, gold could gain additional safe-haven buying demand.
“A more positive gold environment would result from a more pronounced economic downturn, thanks to an accompanying increase in volatility and risk-off appetite,” the World Gold Council explained in the report.
Gold tends to perform well during recessionary periods when investors and institutions alike transfer their funds into the more secure, inflation-proof asset.
For example, from November 2007 to June 2009, gold increased by 19.27%. Similarly, from December 1979 to July 1980, the precious metal gained 19.97%. The most prominent example may have been from 1973 to 1975, when gold gained 81.8% in just under two years.
If the U.S. experiences a softer economic landing, gold will likely experience much milder performance rates, which is likely why Reade’s prediction veers on the lower side. How the second half of the year plays out will greatly depend on how the U.S. economy responds to the Fed’s monetary policies. Regardless of gold’s performance for the second half of the year, it started 2023 off strong enough to achieve a successful year, per usual.
Moving beyond 2023, analysts like Reade expect that gold’s momentum won’t end anytime soon. The de-dollarization trend has only just started, which means central bank gold buying should continue for the foreseeable future, though maybe not at record rates.
Based on all of these factors combined, Reade’s long-term prediction makes sense. Gold can occasionally show excellent short-term yields, and 2023 could be one of those years, though its long-term successes are far more reliable. Whether or not political actions play out in gold’s favor this year should not impact its overarching ability to act as an inflation-hedging tool over long periods.
“Given the inherent uncertainty in predicting the global macroeconomic outcome, we believe that gold’s positive asymmetrical performance can be a valuable component to investors’ asset allocation toolkit,” the World Gold Council concluded.
As always, investors should consult their financial advisors before making any portfolio decisions.