Despite headwinds in 2022 such as rising interest rates, a strengthening dollar or slowing inflation
at the end of the year, gold is doing better than stocks, bonds… or Bitcoin.
Despite support from geopolitical context and inflation, gold’s performance suffered from rising rates and a strong dollar.
In US dollars, gold’s performance for 2022 is -0.29%.
But in Euros, gold started 2022 at 1608.9 euros/ounce and closed at 1703.8 euros/ounce, hence an annual gain of +5.9%.
By the way, the S&P 500 index lost almost 20% in 2022.
Geopolitical tensions
War in Ukraine broke out in late February. Conqéquently, gold climbed +18% in Euros between January and the beginning of March 2022. While the conflict seems to be “stabilizing”, geopolitical tensions remain a crucial issue in 2023: relations between the West and Russia, but also China, among others.
On the chart below, we can see the yellow metal entering a bearish channel (in red) from its early March peak at 1901.76 euros/ounce.
Source: Tradingview
The yellow metal first hit the support zone in July 2022 at 1646.22 euros/ounce. While remaining in this bearish channel, it retraced 13.3% to the October low at 1647.65 euros/ounce.
The support zone (horizontal blue line) held and gold bounced back afterwards.
Since the beginning of 2023, it is breaking out of this bearish channel from above and is coming to work its resistance.
Let’s see if it confirms this breakout to prepare for a move back to the previous highs around 1850 euros/ounce and 1900 euros/ounce.
Inflation
Inflation in the Eurozone was already a hot topic in 2021 and it continued in 2022. It peaked at 10.6% in October only to slow to 9.2% year-on-year in December.
Source: Tradingview
Inflation will remain a crucial issue in 2023 as well. A return to the 2% target seems extremely unlikely without a truly significant increase in rates. But that could lead to a recession. So we are caught between a rock and a hard place.
And if the ECB had no other option than to lower rates again, it would generally be good for the yellow metal.
Central Banks
In 2002, central banks bought more than 670 tons: this is an absolute record!
Gold purchases by central banks indicate the strategic importance of the yellow metal.
China raised its holdings by 30 tons in December, according to data on its website on Saturday. This follows November’s addition of 32 tons, and brings the nation’s holdings to a total of 2,010 tons.
November’s 32-ton addition was the country’s first reported inflow since September 2019. Prior to that, the last previous increase was in October 2016.
We can expect to see this trend of central banks continuing in 2023 to further diversify their reserves from the US dollar.
Note also that investment demand (coins and bullion) increased by +3% in 2022 despite a negative sentiment for the yellow metal.
Bitcoin
In 2022, Bitcoin lost 62% !
Although many cryptocurrency advocates claim that bitcoin is a new alternative to gold as a long-term store of value, gold and bitcoin don’t really have much in common. And today’s developments in the cryptocurrency markets only prove it.
The price of bitcoin is too volatile, which is not suitable for either a currency or an investment. So far, bitcoin has been a superb instrument for speculation and trading, but not for storing value or long-term investing.
Fraud and related cryptocurrency exchange collapses have been a serious problem in the cryptocurrency market. In 2022 alone, first there was the collapse of the Terra ecosystem, and then, in November, the collapse of one of the largest crypto exchanges, FTX, led to cryptocurrency holders losing billions of dollars.
Yes, Bitcoin is certainly a more liquid asset. It’s easier to send a few bitcoins anywhere in the world with only one click on a keyboard or on a mobile phone than to transport gold coins or bars.
Of course, we do not have a crystal ball, but fundamentals and chart analysis indicate a nice bullish probability for gold in 2023. And remember that despite headwinds in 2022, gold still gained +5.9% in euros.
