Will 2023 be the year that gold hits $3,000 an ounce?
Ole Hansen, respected commodity strategist at Denmark’s Saxo Bank, says it’s possible once markets realize that global inflation will remain hot despite monetary tightening.
Hansen notes three other factors that could help push the metal to new record highs next year. One, an increasing “war economy mentality” could discourage central banks from holding foreign exchange reserves in the name of self-reliance, which would favor gold. Two, governments will continue to drive up deficit spending on ambitious projects such as the energy transition. And three, a potential global recession in 2023 would prompt central banks to open the liquidity spouts.
The analyst has already said that his comments are less of a forecast and more of a thought experiment, but I don’t think investors should brush him aside so easily. It’s very possible that we could see $3,000 gold, or higher, in the next 12 to 18 months, for all the reasons he mentioned.
Hansen is correct in bringing up central banks’ increasing appetite for gold as a reserve asset. Central bankers and finance ministers may be all about fiat currency, but behind the scenes, they’re gobbling up the yellow metal at the fastest pace in living memory. In the third quarter, official net gold purchases were about 400 tons, around $20 billion, the most in over a half-century.
With inflation looking to persist in 2023, a small to moderate recession appears more and more likely. There’s the risk that the Federal Reserve will overtighten, and this has strong macroeconomic implications for gold.
An indicator we keep our eyes on is the spread between the 10-year Treasury yield and two-year Treasury yield. Over the past 40 years (at least), every recession has been preceded by a yield curve inversion. As of today, the yield curve is at its most inverted in over 40 years, suggesting a recession is all but guaranteed. The question is not if, but when.
In recent days, most banks and ratings agencies have slashed their global growth estimates for 2023 on expectations of persistently high consumer prices and rapid monetary tightening. Buying gold now could prove itself to be a wise investment choice. In five out of the past seven recessions, gold delivered positive returns, according to the World Gold Council, providing some protection to investors.
Technically, gold is starting to look attractive right now, the metal having broken above its 50-day and 200-day moving averages. After breaching the key $1,800-an-ounce level recently, gold is again testing the psychologically important price point.
If 2022 ended today, this would mark the second straight year that gold has declined. And yet, at negative 1.75 percent, the yellow metal has remained one of the best assets to hold this year.
Frank Holmes is CEO and CIO of U.S. Global Investors. The original version of this story appeared on the U.S. Global Investors’ website. Read it here.