Modern Mining March 2023

COMMODITIES OUTLOOK

Gold market outlook 2023: The global economy at a crossroads By Krishan Gopaul, senior market analyst EMEA, World Gold Council

In 2022, economic and geopolitical uncertainty added strain to a global economy already reeling from the effects of the Covid-19 pandemic in the previous two years. As inflation soared, cen

Krishan Gopaul, senior market analyst EMEA, World Gold Council.

L ooking back, gold performed admirably under the circumstances, posting a small but notable (0.4% y-o-y) gain at the end of the year. Weak physically-backed gold ETF demand was off set by other pockets of strong demand – retail bar and coin investment and central banks – which sup ported gold’s overall performance. At the beginning of 2023, the global economy is at a crossroads as it reckons with the economic shocks of the past year. Against such a backdrop, gold’s performance will be shaped by the intertwin ing effects of economic growth, interest rates and inflation, in addition to the influence of geopolitics and the still-strong US dollar. In our 2023 Gold Market Outlook, the World Gold Council explores three possible scenarios and what each could mean for the global gold market. 1. The global economic consensus After the shocks of 2022, the global economic con sensus is that recession is likely this year. Growth tral banks tightened monetary policy ag gressively in an attempt to regain control.

Investors turn to gold for its safe haven investment qualities.

is set to remain low as forecasts dictate that global GDP is due to rise by just 2.1%, its lowest for forty years (not including the global financial crisis and the Covid-19 pandemic). If a recession does take place, gold’s value as a long-term, strategic asset will come into focus. Continued geopolitical tensions represent a material economic and financial risk for many econo mies. As we saw in 2022, investors sought to shield themselves from turbulence by turning to gold for its safe haven investment qualities. It is likely that

Gold being mined from underground.

this geopolitical risk premium will remain in place for some time. Yet lower (though still elevated) infla tion will likely result in less interest from retail investors who might have turned to gold as a hedge against inflation. 2. Implications of a more severe downturn The consensus view focused on a mild recession appears to be playing out, although a few devel opments since the release of our 2023 Gold Market Outlook nod to a possible, more severe downturn. We could also see a ‘stagflationary’ environment emerge, which in turn could knock business profitability and ultimately employment rates. Most assets tend to move in

10  MODERN MINING  March 2023