So what does the future hold for gold investment? 

Well if 2022 was anything to go by, the prognosis for the golden metal is looking decidedly positive.

There are some very bullish predictions for gold price being posited. Juerg Kiener of Geneva based Swiss Asia Capital a leading player in the investment field, predicted that gold prices could surge to $4000 per ounce in 2023 during an interview with CNBCs Street Signs Asia broadcast recently.

Central Bank Gold Buying

In 2022 global Central banks purchased more gold than in any year on record. Countries buying in quantity included China, Singapore, Turkey, and Kazakhstan. China in particular has been stockpiling gold for over 20 years now and has accumulated over 1500 tons in that time. There is also speculation that China does not report all its gold purchases and may have several thousand tons of gold “off the books”. Russia is another country that may well not be publicly reporting all of their gold investing. For a small country Turkey has been punching well above its weight in terms of buying gold with over 500 tons of gold on their books. In common with quite a few Eurozone countries Turkey has been battling rampant inflation, so their return on gold investment in Turkish lira terms was around 40% last year.  Last year was the 13th year in a row of net positive gold buying by Central Banks and there is no sign of this trend changing.

The World Gold Council, the market development organization for the global gold industry, projects continued gold buying throughout 2023 

“Looking ahead, we see little reason to doubt that central banks will remain positive towards gold and continue to be net purchasers in 2023”. 

They believe that the two main driving forces behind this continued gold buying, is that gold performs extremely well in times of crisis, as it is well known to be a ‘Safe haven asset”, and also golds role as a long term store of value. In these current turbulent times geo-politically, and with worldwide inflation in many countries it is an intelligent move by Central banks to hedge against risk by buying gold.

Gold and the US Dollar

The price of gold has an inverse relationship with the USD. For trading purposes Gold is denominated in USD. This means that fluctuations in the value of the dollar effect demand for gold. When the US dollar is high, demand for gold will typically fall internationally as it becomes more expensive to buy against other currencies. The inverse is true when the USD is low gold becomes cheaper and more appealing to buy for global purchasers. With many commentators believing that the dollar has peaked and will reverse this year from its highs of last year, this is a positive note for gold investment.

HSBC the largest bank in Europe noted to its top investment clients in December 2022 “We expect the US Dollars powerful climb over the past year to reverse in 2023 as the Feds hiking cycle comes to an end. It has peaked”.

Gold and Stagflation

Stagflation is fairly uncommon, the word is a combination of economic stagnation and inflation, and describes a situation where inflation drives prices higher and purchasing power down.

The decision by Russia to invade Ukraine, created a situation where basic necessities like gas, power and basic commodity prices skyrocketed to record levels both in the States and in Europe. This had a significant and dramatic impact in the retail sector as consumers lessened their retail spend in order to fund their basic needs. Further to this substantial supply chain shortages and the lingering negative effects of the Covid Pandemic is negatively effecting the economy and effectively hamstringing economic growth. This combination of factors is a perfect recipe for stagflation, and a potentially positive factor for gold investing.

Whilst this is bad news for almost all other investments and asset classes which are showing strong downside, it is good news for gold as gold has historically performed well under these circumstances. Savvy Investors often follow the rule “Safety through diversity” and adjust their portfolios away from riskier asset classes and into trusted safe haven assets of which gold is primary.

Gold and the Trend towards Digitalization

There are some interesting developments happening around digitalization which whilst still in their relative infancy, could become very substantial drivers of gold price in the future.

The first of these is the possibility of Sovereign nations creating a gold backed stablecoin. A stablecoin is a digital financial asset backed by assets of value.

Russia first mooted this idea back in 2019 at a meeting of the State Duma. Initially there were discussions that the Russian Central Bank should engage in a dialogue with the BRICS countries. The Governor of the Central Bank Elvira Nabiullina was quoted as saying at the time “Gold is the least vulnerable asset. We could probably find understanding in China, India and Brazil”.

A further news story that came out in January was that Tehran and Moscow were considering a jointly created gold backed stablecoin, which could be used to facilitate settlements between Russia and Iran and trade in the Persian region.

Chair of the Financial Market Committee Anatoly Aksakov told Russian press that “We discussed the issuance of stablecoins, digital financial assets (DFAs) backed by certain valuables. For example, I spoke about gold”.

Were Sovereign nations to create gold backed stablecoins, this would ensure substantial and ongoing demand for buying gold in the future.

The other digital factor which whilst in its infancy at the moment, may over time influence gold price is that of gold backed digital currencies such as Paxos Gold, or Pax Gold for short. Issued by Paxos a financial institution based in New York, each Pax Gold digital token is backed by one ounce of gold held in secure storage in Brinks security vaults in London. The token is pegged to the price of physical gold and can actually be redeemed for a 400 ounce bar [if you have 400 Pax Gold Tokens. Pax Gold is considered a “safe haven asset” in exactly the same way that physical gold is. It is not only a very easy way to trade gold, it is also a way to quickly side-line your cryptocurrency investments in a bear market and ride out the volatility until the market stabilizes.

More and more institutions are getting exposure to cryptocurrencies like Bitcoin and Ethereum, and as this trend grows, these institutions will use Pax Gold as a safe haven asset to exit the market during sustained down trends.

Whilst this scenario is very much in its infancy, the rise of interest in cryptocurrency investing is growing daily and a time will come when institutional purchases of Pax Gold may have a significant effect on the price of physical gold.

These factors make for an interesting time ahead for the golden metal and very possibly a good entry point for those considering gold investment.