VanEck’s Joe Foster, Portfolio Manager, Gold Strategy comments that in 2022 the gold price finished with of loss of just USD5.18. “While gold ended nearly unchanged, the year was far from calm, with prices dropping USD450 from highs to lows before returning to its starting point,” Foster writes. “Gold saw a maximum drawdown of 11.3 per cent but finished with just a 0.3 per cent loss, which was a very respectable result, given the 18.1 per cent loss for the S&P 500 Index and 64.3 per cent loss for bitcoin.”
Foster comments on the ‘War Premium’ experienced in the gold market in 2022. “Gold had been trading in a range centred on USD1,800 for most of 2021. It broke out in February 2022 as warnings surfaced of a possible attack on Ukraine. However, once Russia’s bombing of Ukraine began, gold went on to test its all-time highs on 8 March at USD2,070 per ounce. By May, the war premium had faded as it became clear that the fighting was not likely to escalate beyond Ukraine.
“The war provided a temporary positive catalyst; however, the dominant driver through most of the year was increasing pressure on gold prices from Fed policies and the US dollar. The market underestimated the resolve of the Fed to fight inflation. While we believe current tail risks (pandemic, inflation, war) are equally as severe as those in past bull markets, the key difference in 2022 was the strong US dollar. This kept the pressure on gold prices, muting the response from inflation, geopolitical turmoil, and other risks.”
Foster also comments on the outlook for 2023. “It looks like gold’s competition with bitcoin has ended. It was never clear just how much gold demand, if any, was being siphoned off by cryptocurrencies. The choice is clear for anyone who has contemplated the gold versus bitcoin debate. Bitcoin and other cryptocurrencies are risk assets. On the other hand, gold is a defensive asset, a store of wealth, and a currency alternative with intrinsic value as a central bank asset, as jewellery, and for industrial uses. Its unique role in the financial system has been confirmed once again. A shift in gold’s investment outlook can be seen in bullion ETF flows. Global bullion ETFs experienced heavy outflows from April to November. The outflows have now stopped, and while a stronger catalyst is probably needed to prompt inflows, at least the selling pressure has abated. Perhaps 2023 will bring a renewed focus on the yellow metal.”
