Gold is having a spectacular comeback in 2023, on track for its best yearly return since 1979. Investors and analysts all have their heads turned by the safe haven asset. So far this year, gold futures in New York have spiked close to 71%. And gold is hitting all-time highs, lifting above a previous record high of $4,500 per troy ounce. This fantastic explosion paves the way for the stalwart for its biggest annual jump in 46 years.
Through the end of 2022, as of the start of this year, gold futures were trading close to $2,640 per troy ounce. A mix of policy and market forces fueled this unprecedented boom. A relatively weaker U.S. dollar, as well as burgeoning demand from central banks, particularly in China, were instrumental factors. Investors are fleeing to safety, with gold benefiting as these economic storm clouds continue to mount and pushing its price through the roof.
Factors Driving Gold Prices
The depreciation of the U.S. dollar has been a fundamental factor supporting the rise of gold prices. A higher dollar value tends to increase gold’s allure, since a dollar worth less makes gold cheaper for investors holding other currencies. This extreme dynamic has made investors rush to the safe haven of gold.
Central banks around the world have increased their gold purchases, China being most prominent in that effort. The People’s Bank of China (PBOC) has been on a gold buying spree that shows no signs of stopping. This change is intended to reduce its reliance on US dollars. This is a big step by central banks. Taken together, they have for the past three years added over 1000 tons of gold annually.
“The freezing of sovereign reserves and the broader fragmentation of the global financial system have introduced a structural element to gold demand that is likely to persist for years.” – Ole Hansen
This increased central bank demand further underlines the increasing acknowledgment of gold as a safe haven asset during economic volatility. Analysts suggest that gold serves as “a hedge against an increasingly uncertain world,” bolstering its appeal during times of financial instability.
Historical Context
Measured in annual percentage-return gains, gold’s meteoric rise this year is especially remarkable. The last time gold gained that much was the last year of Jimmy Carter’s presidency, 1979. Their sustained momentum truly represents a historical turning point. In earlier decades, central banks usually added in the range of 400-500 tons annually.
Historically, any time central banks have begun adding to gold they’ve done so at a turtle’s pace. We collectively witnessed a daring new turn to their playbook over the last three years. This move emphasizes the long-term trend amongst central banks and other global financial institutions of favoring gold as a reliable, sustainable asset.
“Uncertainty remains a defining feature of the global economy.” – Joe Cavatoni
Broader Market Trends
Beyond gold, all precious metals have experienced extraordinary spiking prices this year. Silver futures have jumped a staggering 146%. At the same time, platinum and palladium futures have skyrocketed almost as much—by about 150% and 100%, respectively. Whether measured by purchase volume or metal weight, these trends point to a prevailing interest in precious metals as investors continue to face an uncertain economy.
This overall increase can be attributed to several factors, particularly inflation fears and the Russia-Ukraine conflict. As investors increasingly look for diversification and security, the increased demand for these metals is expected to be ongoing.
“Gold serves as a hedge against an increasingly uncertain world.” – Hakan Kaya