After being weighed down for much of 2022, VanEck has suggested that signs are increasingly pointing to a surge in gold and gold equities over the coming year.
In a recent note, VanEck’s head of investment and capital markets, Russel Chesler, explained that some strong foundations were laid for gold towards the end of last year.
Mr Chesler said that central bank demand soared in the third quarter, reaching almost 400 tonnes or around quadruple the amount that was purchased in the same period a year earlier.
“While the price of gold saw some increases as we moved through Q4 2022, the price is still relatively low, resulting in strong demand for gold from buyers in China, India, and UAE who are capitalising on a bargain,” he said.
“According to Bloomberg, gold in Dubai, Istanbul and Shanghai is trading at a premium to spot prices in London. Over 527 tonnes have been moved out of New York and London vaults since April, while Chinese imports reached a four-year high late last year.”
Locally, Mr Chesler noted that the Future Fund has indicated that it is increasing its exposure to gold to reposition for an environment of higher inflation and increased volatility.
“This physical demand should help create a floor for the gold price, probably around the US$1,600 level, limiting downside,” he said.
“With elevated recession risk in the US, we are of the view that gold has a positive return profile. There is more upside to the price of gold than downside.”
According to Mr Chesler, the current “love affair” with the US dollar is set to wane, which he said should be a positive for gold, while also pointing out that the currency has already fallen by around 9 per cent since the end of September.
On the outlook for the year ahead, Mr Chesler claimed that 2023 could present a perfect storm that will help push gold back to levels seen in 2019.
“In addition to the USD potentially consolidating, we are set to enter the second half of an inflation cycle. Gold typically performs the best in the second half of the inflation cycle and in the last tightening cycle trended upwards before the end of the tightening cycle,” he said.
“Then we have the threats of a commodities inflation spiral with supply constrained by a new cold war with Russia, combined with impediments to new exploration created by climate change strategies, market crashes and economies capitulating to rising rates.”
