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key takeaways
- Gold prices hit all-time high amid economic uncertainty, weak dollar and inflation
- Gold mining companies and ETFs are also up so far in 2023
- The precious metal is sensitive to macroeconomic factors, so it could fall in the future – but so far, this year has been great for gold
Gold: The world’s oldest valuable commodity, the subject of many a song, and a solid investment option during a recession. Gold has rallied in recent months, breaking the $2,000 an ounce barrier this week for the first time since 2020.
The price of the ‘safe haven’ commodity is driven by a number of factors that are working in favor of gold at the moment. This is leading some experts to conclude that we may see gold prices continue to break their own records in 2023 and beyond.
But are these claims blown by the wind, or are we witnessing a golden summer for investors? We have the latest information about the market and gold price predictions.
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What’s new in gold prices?
After reaching a 2020 high of $2,075, gold has underperformed over the years, reaching a September 2022 low of $1,615 an ounce. However, the commodity has rallied in the last six months to regain a huge amount of its lost value.
Gold has now breached the $2,000 an ounce mark again as of April, with many experts predicting what lies ahead for the gold price to an all-time high. The all-time high for this decade is currently at $2069.40 for 2020, but investors watching the market closely are calling over $2,100 as a reasonable near-term price.
What affects the price of gold?
There are a few factors at play that affect gold prices. When there is an economic downturn, the risk appetite of investors goes down and people look for safer options. In turn the price of gold goes up as more people buy it.
Bond yields are inversely related to gold. If income starts falling, gold prices usually go up because the returns are better. Similarly, if yields start rising, the price of gold falls. The two-year US Treasury yield currently stands at 3.875%, down from its peak of 5.1%, while the ten-year yield eased to 1.10% from 1.72% in March.
And finally, the value of the dollar as the world’s reserve currency also comes into play. The bond market has brought a stronger dollar back in line, and gold is worth more in dollars when the currency depreciates.
Only one of these factors can have an impact on gold prices, but at the moment we are seeing all three interacting with each other to cause an uptrend. If this trinity continues, we may see more and more investors flocking to the safety of gold, which could push prices further.
What about the wider gold market?
Apart from the precious metal, companies trading and selling gold are also taking advantage of the bullish market. With high inflation rates touching every industry, gold miners have had to pay more for materials and labor. This has eroded their profits, so a rise in gold prices makes these companies a more attractive investment option.
Barrick Gold Corporation is up more than 10% since the start of the year at a share price of $19.68, while Newmont is up 5% over the same time frame to $52.07.
Gold ETFs are also doing well. The VanEck Gold Miners ETF is up 15.78% in 2023 and the SPDR Gold Trust is up 9.8% this year to a high of $187.83.
This is a welcome change for gold investors after a few years of sluggishness, and may see a rush of investors as economic uncertainty continues.
latest fed policy
Gold is considered a ‘safe haven’ asset, which means it is a good option for investors when a recession may be on the horizon. It is not an accurate indicator and depends on a lot of different economic factors, so it can be useful to look at what economic data and the Fed are doing to predict whether gold may go up or down.
According to recent data, signs are pointing to the screeching brakes on the economy – and a possible recession as a result. The ADP private payrolls report showed private sector hiring actualized at 145,000 against an estimated figure of 210,000.
Unemployment claims are rising and consumer spending is weakening, while the core PCE index, the Fed’s favorite measure of inflation, also cooled to a mere 0.3% increase in February. This suggests that the Fed’s policy of aggressively raising rates to reduce inflation is working, although we will need to see what other core data sets like the CPI reveal to paint a clearer picture. Are.
Can gold prices increase further?
Keeping all these things in mind, can we see gold prices breaking records again and again? it’s possible. If inflation is still high and the Fed decides to stop raising interest rates in the near future – which it could do earlier than planned due to the recent international banking turmoil – it could be very difficult for the gold market in 2023. Good news.
Gold is up 7% since the start of the year followed by a modest 1% return in 2022, so we may see a continuation of the bull run when deployed as a hedging strategy against inflation. Some investors are predicting gold to average $2,075 by 2024, but it all depends on how macroeconomic factors play out.
Bottom-line
While gold prices are not the only indicator of whether a recession is underway, this latest rally is one to watch amid economic uncertainty. Should inflation remain high and interest rates on hold, then gold has one option to turn into an investor’s new best friend.
You should always do your own research as to whether alternative investments such as gold are right for your portfolio, especially as the price of gold is determined by the world forum. But as it stands, the future for gold is looking bright in 2023.
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