Gold 2023 Outlook: History Suggests We Could Be Gearing up for Another Bull Market
The comments below are an edited and abridged synopsis of an article by Gold-Eagle
Gold failed to benefit from the shift away from risk assets over the course of 2022, with the price falling back from the $2,000 peak seen in March. There have been an incredible seven consecutive months of downside since then, with the US dollar dominating as the primary safe-haven asset for markets. More recently, that relationship has helped drive gold higher as the US inflation decline helped drive the dollar lower. While we look to close the year on a more positive tone than that set within much of 2022, the outlook for 2023 could create the basis for the next bull market.
What drives gold? It has few uses, and to some this is a reason to invest in silver, which is widely used in industrial settings. Gold is typically an investment vehicle, with many owning it as a hedge against currency devaluation. Gold has historically done well at times of crisis. During the 2008 and 2020 recessions, there was significant upside for gold as the Fed implemented QE programs that enlarged its balance sheet. Typically, gold consolidates or reverses when the Fed shrinks its balance sheet.
While the dollar is often blamed for the demise of gold, that negative correlation is not always correct. The role of inflation in this latest crisis does help heighten that inverse correlation, with the correlation coefficient between the dollar and gold highlighting that, typically, a stronger dollar will result in weakness for gold. So we may have to wait for the dollar to top out before gold comes back into strength. The decline of the dollar has helped lift gold, but traders will have to consider whether this is the top for gold or simply a blip within a wider bull market for the greenback.
