Unlike the crypto market, precious metals show promising stability in the year ahead. Image Credit: Gulf News Archives

The year 2022 has certainly been a strong one for gold investments. The financial downturn across many developed markets had a ripple effect. With inflation hitting double-digits in Europe and central banks having to intervene, this has paved the way for gold to reemerge as a safe-haven asset The spillover of forecasted recessions has meant the bear market aggressively plagued investors over the last year, and coupled with the ‘crypto winter’, many have suffered huge losses. As a result, it’s never been more important to have a diversified portfolio with a long-term horizon outlook.

Investor attitude to gold

When analysing investor sentiments towards gold, 2022 has proven exactly why gold is a part of the fabric that makes the UAE so desirable. According to World Gold Council data, the demand for gold jewellery rose from 8.2 tonnes to 10.7 tonnes in the third quarter of 2022, as compared to the same quarter last year – that’s a 30 per cent increase over the last 12 months, thus cementing Dubai as the ‘City of Gold’.

Millennials are moving towards digital platforms to gain access and this is likely to be a continued trend in 2023. Greater access, security and safety when buying online have sparked a surge in online gold purchases, which is likely to continue. This is in large part thanks to digital platforms, which also remove the hassle of trading physical bullion and the safety concerns of storing it.

Gold vs crypto

Gold has served as a safe haven investment historically - and the last year has certainly shown us why, as it outperformed many other commodities and alternative investments such as Bitcoin.

For example, had you bought Bitcoin on January 1, 2022, today you’d be down by 60 per cent. However, had you invested in gold, your investment would be down by just 1 per cent. Interestingly, at its peak, gold appreciated by 10 per cent during Q1-22 and unlike the crypto market, precious metals show promising stability in the year ahead.

Bitcoin’s unpredictable price swings have long been a tantalising prospect for those seeking fast riches. However, we are currently witnessing a trend towards getting rich slowly. And Goldman Sachs agrees, as in a recent report gold is forecast to outperform Bitcoin in the long run. The research cited gold’s resilience in the face of financial downturns, making it a superior portfolio diversifier. 2023 shows signs of gold’s strength once more, as many investors seek to battle the current financial climate.

A looming recession

As economic forecasts paint a gloomy picture of the coming year, now is the time for gold to dominate across investment portfolios. The stock market declined by 53.78 per cent during the 2008 recession, highlighting the importance of a portfolio that can safeguard against financial downturns. In 2008, the price of gold was $700 per ounce. A mere three years later, the same gold was worth $1,900 per ounce, demonstrating how gold acts as a hero investment during times of financial uncertainty.

As we look ahead, signs show a global recession is likely to hit us once again. As such, gold will continue to be the investment of choice amongst investors as the equity market continues to struggle.

The geopolitics of gold

During Q1-2022, gold prices were negatively impacted by expectations of interest rate increases in the US and Europe, as well as rising real yields and a strong US dollar. However, as the conflict between Russia and Ukraine escalated, gold was a chosen store of value due to inflationary pressures hitting commodities globally, in tandem with global supply chain issues.

However, while it’s likely that gold will continue to perform well, the Federal Reserve and other central banks are likely to continue actively combating inflationary pressures through increased interest rates, and therefore we’re likely to see slower growth in the market.

Takeaway for 2023

Gold is expected to be a solid investment option in 2023 as it promises security against rising inflation rates, geopolitical uncertainty and financial market volatility. Economic uncertainty is likely to cloud much of H1-23, with significant impacts on global supply chains, inflation rates and the commodities market. The demand for gold is likely to continue into 2023, as investors look to rebalance their portfolios and weather the financial storm ahead.