2022 has been a tumultuous year for financial markets globally. While stocks took a sharp hit, cryptocurrencies braved the harsh crypto winter, and central banks fought fiercely to tame inflation rates, gold once again became a safe haven for investors.
January 2023 opened with investors flocking to gold and other precious metals for financial refuge, as markets continued to battle the harsh economic reality. At the beginning of the year, gold bullion experienced a 5.7 percent increase, drawing interest from retail, institutional, and government buyers alike.
It is advice often given, but quickly forgotten – maintaining a diversified portfolio with a long-term perspective is crucial for all types of investors. 2023 will be the year gold reminds us why it has stood the test of time.
Investor sentiment is shifting
While the yellow metal has always played a strong role in the fabric of the UAE, it has surged dramatically over the last year. According to new data from the World Gold Council (WGC), UAE consumers purchased 46.9 tonnes of gold jewellery in the UAE in 2022, up 38 percent compared to the same period the previous year. This has placed the UAE firmly in the number one spot for gold sales in the Middle East, surpassing Saudi Arabia, Egypt, and Kuwait. Indeed, the entire Middle East region witnessed a 15 percent year-on-year rise in demand to 190.4 tonnes in 2022.
The story is the same globally, as annual demand in 2022 reached a staggering 4,741 tonnes, an 18 percent rise almost on par with 2011, which was an exceptional year for gold. If the data is anything to go by, it is clear that there has been a marked shift in investor sentiment towards the commodity.
Gold’s investment potential has also begun to capture the attention of younger, more tech savvy investors. Millennials have taken interest in digital platforms and ‘DigiGold’ as a means of investing in precious metals. In the UAE, and broader GCC region as well, digital platforms for trading physical gold are filling a demand that was previously unmet.
This is a generation accustomed to the convenience and reliability of digital offerings, and gold investment is no exception. One of the biggest concerns retail consumers have when investing in gold is the safe storage of the metal. Digital gold offers to alleviate that concern by providing the safety and security that consumers need, while also offering peace of mind of physical ownership.
The ability to buy physical gold digitally, with a third-party taking care of the storage, safety, and transportation, has enticed a younger demographic of investors to wade into gold investing. In India, the second largest gold jewellery consumer in the world, a survey by Axis My India, revealed that 15 percent of Indian youth (18-24 years old) wanted to invest in digital gold, more than any other age demographic.
Gold vs. crypto
One of the contributing factors to millennials’ newfound interest in the precious metal is perhaps the grim sight of what transpired with cryptocurrencies in 2022, an asset class much favoured by the younger generation.
Bitcoin, the largest cryptocurrency by market capitalisation today, experienced an annual decline of nearly 65 percent in 2022. However, true to its appeal, gold validated its reputation as a store of value by putting up a 0.4 percent increase by the end of 2022. It was a sombre performance not for the faint of heart and left many with a shaken confidence in the future of the crypto space.
It is also worth noting that the commodity’s lack of volatility is a quality which has enticed investors who have been on the receiving end of the crypto double-edged sword. Coupled with the regulatory concerns that plagued the crypto industry in the back half of 2022, it is apparent that the bullion’s stable, regulated, and tangible utility has convinced many investors to seek a more conservative option.
Economic forecast
One of the primary factors leading to the appreciation of gold prices in 2022 was the decline of US equities into a significant bear market. The S&P 500 registered a 19.44 percent decline in 2022, the worst annual performance since the great financial crisis of 2008.
It is apparent that diversifying your equities portfolio is not enough to weather a sharp economic downturn. A well-rounded distribution of asset classes is necessary to hedge against turbulent periods, and it has proven to be one of the most reliable commodities in that regard. Therefore, as the stock market continues to face difficulties, gold is expected to remain a popular option among investors.
Geopolitical factors
While talks of a looming recession circulated with near certainty towards the end of 2022, the new year has brought forth a more measured perspective. In January, the IMF upgraded the global economic outlook to a projected 2.9 percent growth in the world’s economy in 2023, abating worries of a global plunge into recession this year. The news comes as China eases Covid restrictions and slowly opens back up its economy, which is projected to grow 5.2 percent this year. In addition, central banks’ efforts to combat inflation have led to a more optimistic outlook for where global inflation may peak.
Although it can be argued that if conditions continue to improve in this regard, there is likely to be minimal movement in pricing as a result, it is worth noting the great uncertainty which clouds this assessment, particularly as the war in Ukraine persists. So long as unpredictability abounds, investors will be wary of making bold bets, and gold will still be sought after as a financial safe haven investment.
2023 outlook
Gold is poised to continue being an anchor investment in the coming year, offering refuge from inflation, political instability, and the downturn in the stock market. The first half of 2023 is anticipated to be marked by financial ambiguity, having a major effect on worldwide supply chains, inflation, and commodities markets. As a result, there is expected to be sustained interest in gold among investors seeking to restore balance to their portfolios and prepare for any future financial turmoil.
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