Will Gold Outshine the Dollar in 2023? – Experts Say YES!

gold price XAU spot price federal reserve dovish policies

YEREVAN (CoinChapter.com) – The previous year devastated the markets, with inflation raging at its 4-decade peak.

While the dollar index increased after several consecutive interest rate hikes from the Federal Reserve, attempting to restore the dollar’s purchasing power, another asset hit a record high in 2022. Moreover, it hinted at new peaks in 2023 – Gold, the most reliable safe haven for many investors.

Thus, it pays to look closely at the precious metal’s price, long-term perspectives, heightened demand from central banks, and return expectations in the current year.

Spot Gold Peaked in 2022 —  Is a new record incoming?

As mentioned, the markets have not been stable since the pandemic in 2020. Thus, investors responded to the uncertainty by directing their funds into safe-haven assets like precious metals. Subsequently, abundant inflow into the gold market boosted the XAU spot price.

The precious metal price hit a record $2,070 for an ounce in Mar 2022 but slid down throughout the year. The gold-to-dollar ratio bottomed out at $1,620 in November and gained another 17% since, sitting at just above $1,900 on Jan 17, 2023.

Gold price on Jan 17, 2023. Source: TradingView.com
Gold price on Jan 17, 2023. Source: TradingView.com

Also read: FOMC meeting minutes confirm interest rate hikes in 2023 – more pain for stocks ahead.

So what caused the turbulent exchange rate? One of the factors is the troubled dollar index.

The dollar index and its inverse correlation with gold

In short, the dollar index (DXY) is the gouge of the greenback’s strength against the basket of foreign currencies. When the Federal Reserve pumped the economy with cash during the pandemic in 2020, the dollar index decreased dramatically, eating away at the currency’s purchasing power.

Consumer Price index (CPI) peaked in 2022, reaching over 9% in July. As a result, the Federal Reserve implemented the mentioned interest rate hikes to curb runaway inflation, with a goal of a healthy 2%. Unfortunately, during the quantitative tightening policies, the Fed hit the breaks on the money printer. As a result, the dollar index increased, yielding investors more returns. Thus, the gold price dove, unable to keep up.

However, the Fed has eased off the quantitative tightening, as the latter increased the risk of a recession, tanking the stock market. Thus, Gold emerged again as a hedge against the turbulence and a reliable source of yields amid the ‘chaos.’

The erratic inverse correlation between the yellow metal and the dollar is clearly illustrated in the chart below.

Gold vs DXY. Source: TradingView.com
Gold vs. DXY. Source: TradingView.com

Given the correlation, it is crucial to watch the Fed’s fiscal policies for any prediction of spot gold price. Meanwhile, experts forecast a possible new peak for the precious metal in 2023 due to growing recession fears and increased demand from Central Banks.

Experts predict a new peak for the precious metal.

As mentioned, much of the 2023 outlook for global markets hinges on the trajectory of monetary policy. Central banks worldwide have eased off the aggressive interest rate hikes of the past year amid slowing economic growth. Thus, spot gold price could continue its rally against the dovish pivot, knocking on the $2,000 door once again.

Ole Hansen, head of the commodity strategy at Saxo Bank, predicted a rise for gold in 2023 to continue.

In general, we are looking for a price friendly 2023 supported by recession and stock market valuation risks. The de-dollarization seen by several central banks last year when a record amount of gold was bought looks set to continue, thereby providing a soft floor under the market.

said Hansen.

Also read: China reports massive rise in COVID death toll after WHO criticized it for undercounting. Why is China hiding its numbers? 

Eric Strand, manager of the Gold Mining ETF AUAG ESG, also agreed with the bullish outlook. He commented that the precious metal would likely hit a new record high in the current year.

Central banks as a group have continued, since the great financial crisis, to add more and more gold to their reserves. […] It is our opinion that central banks will pivot on their rate hikes and become dovish during 2023, which will ignite an explosive move for gold for years to come.

asserted the expert.

Juerg Kiener, managing director, and chief investment officer at Swiss Asia Capital, predicted a surge in XAU spot price in late 2022. “It is not going to be just 10 or 20%. I think I’m looking at a move which will make new highs,” Kiener said in an interview with CNBC.

He also asserted that diversifying any portfolio with gold is a healthy long-haul strategy. Nikhil Kamath, the co-founder of India’s largest brokerage Zerodha, agreed. He said investors should allocate 10% to 20% of their portfolio to gold, adding that it’s a “relevant strategy” going into 2023.

Gold has been inversely proportional to inflation, and it has been a good hedge against inflation. If you look at how much gold you required to buy a mean home in the 70s, you probably require the same or a lesser amount of gold today than you did back in the 70s, the 80s, or the 90s.

commented Kamath.

Central banks doubled down on gold purchases.

Several Central Banks around the globe chose to increase their gold reserves throughout the previous year, with the overall purchases hitting 400 tonnes. Notably, the demand grew over 300% year-over-year, from only 90 tonnes in Q3 2021.

Moreover, many of the countries leading the purchase list were hit the hardest by inflation. For example, according to the data from Oct 2022, Turkiye led the pack after the reported 85.5% inflation, purchasing over 100 tonnes throughout the year.

spot gold price, Will Gold Outshine the Dollar in 2023? – Experts Say YES!
Central Banks gold purchases: Source: Gold.org

China’s central bank also announced it added about $1.8 billion of gold to its reserves, bringing the cumulative value to around $112 billion.

Also read: Experts Ring Recession Bells for 2023 – Another Crash for Bitcoin?

Gold’s growth in demand has not diminished over the years, as demonstrated by the data above. As fiscal currencies fail to provide stability, more investors count on gold to hedge their funds against uncertainty. If 2023 brings more FUD to the traditional fiscal establishment, gold will likely reclaim the $2,000 peak and more.

Gold price throughout the previous decade. Source: TradingView.com federal reserve central banks
Gold price throughout the previous decades. Source: TradingView.com

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