Analysis of Gold Opportunities in 2023

The world economy has reached a turning point after experiencing several shocks during the previous year. The largest was brought on by central banks, who intensified their strong campaign against inflation.

This interaction between inflation and central bank intervention will heavily influence the outlook for 2023 and the performance of gold.

The consensus view on the economy predicts slower global growth, similar to a brief, possibly localized recession, dropping but still high inflation, and the end of rate increases in most developed economies.

An exceptionally high amount of uncertainty surrounds consensus projections for 2023. For instance, excessive tightening by central banks could cause a more serious and widespread downturn. 

The global economy might be left teetering dangerously close to stagflation if central banks unexpectedly reverse direction and stop or reverse rises before inflation is under control. Gold has typically reacted favorably to these circumstances.

On the other hand, gold might suffer, and risk assets might gain with a less likely "soft landing" that avoids recession.

Analysis of Hot Events Affecting Gold Prices in 2022

Central Bankers were awakened from their policy slumber by persistently high inflation.

A considerably more resilient inflation pulse than the market (and central banks) anticipated has been the underlying macro driver pushing down both stocks and bonds in 2022 and favoring gold. Inflation was very high at the beginning of this year (6.7% in the US), but it was anticipated to decline, especially throughout the second half of this year.

The Russian invasion of Ukraine did not help at all, as prices for oil, gas, and many other commodities shot up in the first quarter and stayed high for most of the year.

Although headline inflation peaked relatively early in the year (at least in the US), it turned out to be more of a plateau than a peak. Due to this persistent inflation trend, the Fed's increasingly hawkish policy measures and language alarmed investors.

Long-term interest rates have increased this year due to rising inflation and higher cash rates. 

The US 10-year bond yield increased from 1.5% at the beginning of the year to a peak of 4.2% in October before declining as inflation and Fed rate concerns subsided somewhat. Higher rates increase the opportunity cost of owning gold.

The uncertainty surrounding the forecast for the global economy and corporate earnings through 2023 has grown due to this year's strong cash and bond rates increase. Global growth decreased in 2022, but growth in the US is still very resilient due to the tight labor market and the services sector's ongoing rebound.

China's Slowdown.

China's zero-covid policy and a broken property market contributed to its lower-than-expected growth this year, which has hurt gold demand, making it probably an even larger growth disappointment than Europe. The outlook for China's economic development has improved in recent weeks as evidence mounts that the country is gradually bolstering the property market and setting the basis for a departure from its zero-covid policy.

Gold Performance and Investment Data in 2022

Despite a downward trend in gold prices in 2022, analysts say that the yellow metal has kept its worth well in the current inflationary atmosphere.

In 2022, when the yellow metal faced challenges from a strong US currency and the US Federal Reserve's war on inflation, gold's role as a haven and a hedge against inflation gave support.

Gold, which is on track to lose 1.6 percent for the year, could not hold onto gains achieved in the first quarter when a price surge in response to Russia's invasion of Ukraine brought the precious metal to a 19-month high of US$2,053 an ounce. The price jump in March represented a 13% increase from the beginning value in January, but it was short-lived as gold fell back to the US$1,939 level after Q1.

Gold fell to US$1,811 during the year's second quarter, and market volatility caused the Dow Jones Industrial Average and the very tech-heavy NASDAQ Composite to enter the bear market territory.

Seasonal weakness and a rising US dollar in Q3 drove gold to a 30-month low of US$1,691 per ounce.

Early in 2022, as economies worldwide were still recovering from the pandemic, Russia's war on Ukraine sparked uncertainty, which helped gold in the year's first quarter.

According to Philip Newman, managing director at Metals Focus, there were two main causes for the performance of gold in 2022.

"Of course, the first one is the war, during which several precious metals experienced sharp price increases. You had that flight to safe havens, which, as you might assume, certainly predominated everything before dissipating.

After the initial shock, the gold price stabilized, and long-term influences started to show.

"The macro backdrop, and diving down deeper, the actions and intentions of the Fed, are what came to the forefront and are still the most crucial," said Newman.

US inflation in June hit a four-decade high of 9.1 percent as gold started to fall below US$1,800 in the year's second half.

Some market participants questioned the usefulness of gold as a hedge due to its weakness in the face of inflation. However, according to other specialists, the yellow metal did its job.

According to Juan Carlos Artigas, worldwide head of research for the World Gold Council, gold has fared significantly better than many of the typical inflation hedges most investors hold.

Gold's price reached a more than two-year low in Q3 as output reached a record high for the year. Mining output increased to about 950 metric tons for the three months, up 2 percent from the previous year.

Despite a sharp fall in investment demand, demand improved by 28% year over year in the September quarter. Even though purchases of bars and coins increased by 36 percent, exchange-traded funds (ETFs) struggled with larger outflows.

Gold Fundamental Analysis and Forecast 2023

Poor Economic Growth Ahead

Due to the speed of central banks' interest rate hikes, there are now several indications of declining output. Global purchasing manager indexes (PMI), which are currently in contraction territory, show that the global economic crisis is getting worse and that a significant chance of recession exists.

According to current consensus predictions, the global GDP will only grow by 2.1% in 2023. This would be the slowest global growth rate in four decades, excluding the global financial crisis and COVID, and would fulfill the IMF's old definition of a global recession, which is growth below 2.5%.

Investors must be vigilant due to a complex mix of lowered but still high inflation and slowing GDP. The prospect of a recession in major economies poses a threat to prolonging the weak performance of corporate bonds and equity markets observed in 2022.

Contrarily, gold normally performs well during recessions, generating positive returns in five of the last seven recessions, and could offer safety. However,  a  recession is not necessary for gold to perform. A sharp decline in growth is all gold needs to do well, especially if inflation is on the rise.

Inflation and Policy

Next year will almost certainly see a fall in inflation as further declines in commodity prices push down the cost of food and energy. Additionally, moderate inflation is consistently depicted by leading indicators of inflation.

Nearly all central banks are currently facing a particularly difficult policy trade-off as the likelihood of weaker growth collides with high, albeit dropping, inflation.

There is a considerable bias in favor of battling inflation over maintaining growth because no central bank wants to lose control over inflationary expectations. Therefore, tight monetary policy may last until the middle of the year.

Markets in the US anticipate that the Fed will begin lowering rates in the second half of 2023. Markets anticipate that policy rates will decline everywhere more gradually than they will in the US, but by 2024, most major central banks are anticipated to be in easing mode.

Even though there is a chance that inflation may decline in the upcoming year, there are still some significant factors that affect the gold market.

First, while a lower inflation rate is important, more is needed for central bankers to abandon their hawkish policies. Central bankers have inflation targets. Inflation must reach its target level or lower for policies to change. 

Second, given lower access to inflation hedges, the individual investor appears to care more about inflation than institutional investors, according to the World Gold Council. They are also concerned with pricing ranges. Prices will still be high and likely impact household decision-making even if inflation hits zero in 2023.

Last but not least, institutional investors frequently evaluate their level of inflation protection using real yields. These grew throughout 2022, presenting obstacles for gold.

The dynamics that were in play in 2022—high retail investment demand but low institutional demand—could partially reverse in 2023.

Indeed, any indication of declining yields could spur increased institutional interest in gold. Overall, decreased inflation should result in less demand for gold from an inflation-hedging standpoint.

Gold Technical Forecast for 2023

On the technical side, gold futures are pointing to a new bullish move. Throughout most of 2022, the price traded within a downtrending channel. However, the price broke above the channel resistance in Q4 and pushed above the 30-SMA showing a shift in sentiment.

The price then retested the 1820.2 resistance level. At this current level, the price might break above the resistance and start making higher highs and higher lows, or it might bounce lower and resume the downtrend. 

The indicators, including the RSI, which is above 50, favor bullish momentum. Therefore the price will likely push higher with the next key resistance at around 1999.2.

What are the Advantages of Trading Gold on Margin?

An investor who buys an asset on margin takes out a broker loan for the remaining amount. When an investor purchases an asset on margin, they make a smaller initial payment to the broker and put up collateral in the form of marginable securities in their brokerage account.

Profiting from leverage is the main motivation for investors to engage in margin trading. By boosting the funds available to buy securities, margin trading centers increase purchasing power. Investors can use their capital as collateral for loans larger than their available capital to purchase more assets instead of using their own money.

Margin trading can, therefore, greatly increase profits. Again, having more securities means that value increases will have a bigger impact because you have a bigger investment. Similarly, if the assets placed as collateral increase in value, you can use leverage even more because your collateral basis has grown.

Additionally, global trading typically offers greater flexibility compared to other loan forms. Your broker's maintenance margin requirements might be straightforward or automatic, and there might not be a set repayment schedule.

What are the Best Ways to Invest in Gold?

Don't limit your gold investment to purchasing only real gold in coins or bullion. Purchasing shares of gold mining firms or exchange-traded funds (ETFs) are alternative to investing in gold. Options trading and futures trading are other ways to invest in gold.

Investing in real gold can be difficult for investors more used to internet stock and bond trading. You'll typically interact with dealers rather than standard brokerages when buying physical gold, and you'll probably have to pay for storage and insurance for your investment. Bullion, coins, and jewelry are the three primary forms of physical gold investment.

Gold Bullion

This type of direct gold ownership is possibly the most well-known. Bullion gold is frequently associated with the enormous gold bars kept at Fort Knox. In reality, gold bullion is any kind of pure or almost pure gold, verified for its purity and weight. This includes gold bars, coins, and other gold-containing objects of any size. 

Although big gold bars (up to 400 troy ounces) are impressive to own, their illiquidity makes them expensive to buy and sell.

Purchase Stock in Gold Miners to Invest in Gold

A much simpler option than purchasing physical gold is investing in the stock of firms that mine, process, and trade gold. You can invest using your brokerage account because doing this entails purchasing equities in gold mining firms.

However, keep in mind that while the stock prices of gold mining businesses are associated with gold prices, they also depend on fundamentals such as each company's current profitability and costs. Due to this, investment in individual gold businesses entails the same risks as investing in other stocks. Single stocks do not offer you the security of diversified portfolios and may experience some volatility.

Purchase Gold-related ETFs and Mutual Funds.

You can gain exposure to gold's long-term stability by investing in gold ETFs and mutual funds, which offer greater liquidity than physical gold and diversity than individual gold equities. Gold funds come in a wide variety of forms. Some are passively managed index funds that use futures or options to track market trends or the price of gold.

However, investors should be aware that just a few mutual funds concentrate completely on gold investing; the majority possess a variety of other commodities. Many mutual funds own gold bullion and gold firms as part of their regular portfolios.

Buy Gold Using Futures and Options.

Trading futures or options contracts, a type of speculative investing, is the riskiest way to invest in gold. Futures and options are derivatives, meaning that the underlying asset's price is the sole basis for determining its value.

Futures are contracts to purchase or sell a specific quantity of an asset—in this case, gold—on a specific future date. Standardized futures contracts represent a predetermined quantity of gold. Futures are better suited for seasoned investors due to the large amounts. Futures are frequently used because they have very low commissions and substantially lower margin requirements than regular equities transactions.

Alternatives to buying a futures contract outright include options on futures. These grant the option holder the right to purchase the futures contract at a given time frame and a predetermined price. An option has the advantages of leveraging your initial investment and preventing losses from the amount paid.

Investing in Gold CFDs

Gold CFD investment is a new investment method that can buy gold through overseas brokerages. It is a relatively simple way, and it is also a gold investment tool that we recommend. CFD can earn price difference through global gold fluctuations, because it does not involve direct purchase of gold, so there is no quota limit.

Advantages: With reference to the global gold market, the trading time can reach 24 hours a day, the liquidity is higher than all products, you can use 100 times leverage, reduce the investment cost to make a small fortune, you can short two-way transactions, and there are more opportunities. No handling fee, no delivery time. Opening an account is simple and requires no capital verification.

Disadvantages: Due to the high degree of trading freedom and high leverage ratio, the risk rate is higher than other products.

Profit: If the gold price falls by 30% based on the above judgment, and the investment in gold futures is $300 short (no transaction threshold), the profit can be obtained: principal * profit percentage * leverage = 300 * 30% * 100 = $9000

Final Thoughts 

2023 will offer good gold investment opportunities, as we have seen above. Investors can take advantage of these opportunities by keeping the following key things in mind.

Gold has historically benefited from moderate recessions and declining profits. Therefore a global recession and poor earnings would be good indicators for investment opportunities.

Gold may be supported if the dollar continues to deteriorate as inflation declines. Inflation is already declining, with the latest November report for the US coming in lower than expected. A continuation of this trend is good for gold.

Gold should remain an effective risk hedge due to geopolitical unrest. The Ukraine war is still going on, and investors will need safety against the uncertainties of 2023.

The Chinese economy should grow faster next year, increasing consumer demand for gold. This growth will come as the country reopens from its COVID lockdowns.

Long-term bond yields will probably stay high, but at levels that historically haven't hurt gold.

In H1, gold is projected to face headwinds from pressure on commodities brought on by a weakening economy.

How to Trade Gold on TOPONE Markets?

1. Register an Account

You can apply online through the webpage or mobile app, which is convenient and fast. TOP1Markets offers two account types: demo account, real account. If you are a newbie trader, you can also practice trading through the DEMO account (with $100,000 in virtual currency).

2. Find Gold Products

Find the price chart on TOP1Markets and choose the right time to trade based on your analysis of the currency pair. Mitrade also provides trading tools such as market forecasts, trading strategies, sentiment indexes, and economic calendars.

3. Start Trading (Open Long or Short Positions)

When you see an investment opportunity, you can start to act. TOP1Markets supports two-way trading of buying and selling. Support pending orders, stop loss stop profit, moving stop loss, etc. Easy transaction!

Start to Trade Gold Now