Gold’s flat performance in 2022 has been recognized by the World Gold Council as a strength. After all, the S&P 500 fell nearly 20% last year!

2022 was good for the gold market and 2023 could be even better. This is basically the summary of the WGC’s latest commentary, entitled “Gold Claims a Gain in 2022”. The fact that the last year was positive for the yellow metal might be a bit counterintuitive. After all, as the chart below shows (courtesy of goldpriceforecast.com), the price of gold was in a downward trend for most of 2022. From early March to early November, the yellow metal slid from $2,039 to $1,629, a decline of 20.1%.

However, the price of gold reversed this downward trend in November, jumping to $1,754 by the end of the month. In December, the rally continued and that last-minute surge took gold to $1,814, allowing it to end the year without a loss.

But how such a virtually flat performance relative to the last day of December 2021 (0.004375%) could be seen as good? Well, maybe because the real interest rates rose an unprecedented 250 basis points while the dollar appreciated more than 8%. As the WGC notes, “the previous largest annual rise in yields was 150bps with a flat dollar. That year – 2013 – saw gold prices fall almost 30%”. Wow, please admit that zero seems like a huge win compared to -30%!

What Gold’s Resilience Shows Us?

According to the WGC, 2022 was “a textbook example of gold’s stable and uncorrelated performance amid market turbulence”. Well, indeed – after all, the U.S. stock market, measured by the S&P 500, plunged 19.4% last year. It implies that gold was truly a safe haven during a market storm and a valuable portfolio diversifier.

What’s more, gold’s volatility remained close to its long-term average, something we can’t say in the case of equities. And gold’s correlation to a 60/40 equity-bond portfolio, although higher than the average, remained low at 20, which is, in the WGC’s words, “an indicator of gold’s characteristic as a consistently reliable diversifier during market turmoil”.

Implications for Gold

What does it all imply for the gold (and silver) market in 2023? Well, the WGC’s previous report saw a “stable but positive outlook for gold prices”. The latest publication confirms that the market scenario of a mild recession is playing out but “with a nod to a more severe downturn”. It means that 2023 should be positive for gold prices. The only question is - how much? I’m usually more cautious than the perma-bull WGC, but this time I totally agree with the painted picture. Hence, I expect that the gold price will rise above $2,000 in the coming months, albeit not without turbulence, as the Fed will end its tightening cycle soon.

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