Amid the recession buzz, will gold continue to glitter in 2023?

The yellow metal kicked off 2022 with all glam and glitter — for once the geopolitical crisis between Russia and Ukraine can be credited for this. It actually pushed the demand for the yellow metal higher.

After a corrective phase, following successive rate hikes by central banks, the year-end once again saw the prices of the yellow metal climbing back to highs and market participants are of the opinion that the coming year will be a good one for it.

The domestic price of the yellow metal has risen over 15% so far in 2022 despite the muted performance on the international front, mainly due to the weakness in the rupee against the dollar, the market analysts add.

Ajit Mishra, VP & Senior Technical Analyst, Religare Broking, expected the positive tone to continue in 2023 amid the uncertain economic environment. "However, the pace of advance could be gradual mainly on the back of global factors.”

Global financial conditions have tightened, and the Fed has raised interest rates at the fastest pace in history, pushing US real yields to their highest levels since the great financial crisis.

The non-yielding gold, somehow, lost its property as a hedge against inflation — thanks to an environment of rising interest rates and a firmer greenback, which hurt the bullion. Gold has behaved more as a commodity lately.

During US recessions since 1973, gold performed well during three: 1973-75, 1979-80, and 2020, said a report from Kotak Securities. "Its performance was somewhat less distinguished during the two: 1981-82 and 1990-91."

During the 2001 and 2008 recessions, gold held up relatively well, but fell short of outperforming, and rallied only during early recovery, the report added.

Market analysts said other than monetary tightening by the central banks, demand in the domestic markets will guide the price of the yellow metal in the coming year.

Mishra said factors like mild recession, continued geo-political tension, receding inflation and improvement in demand with the reopening of China would act as tailwinds to boost the prices.

Shekhar Bhandari, President- Global Transaction Banking & precious metals, Kotak Mahindra Bank, said a host of factors will reaffirm the value of gold and faith of investors in it.

"Gold is well placed to gain going into 2023 as it benefits from Fed pivot, peak in real rates, dollar weakness against G10 currencies and collapse of cryptos," he said.

Gold investors are cautious amid strength in the dollar and the monetary tightening outlook of major central banks. Gold might finally get the recession it needed, to glitter in 2023, market analysts said.

World Gold Council research suggested that the yellow metal has been a top performer among asset classes during periods of stagflation.

Gold has been consolidating in a broader range for the last one and a half years and a breakout above Rs 55,400 on the MCX would fuel fresh momentum, Mishra added.

"It may take a breather at a new record high around the Rs 57,0000 level first then march toward the Rs 64,000 zone," he said. "Any dip around the Rs 52,000-53,000 zone can be considered as an opportunity to accumulate."

ETF inflows into the yellow metal and the demand for jewellery are the other key factors that will guild the markets in the new year. Jewellery demand should also be steady amid China’s reopening and central banks may buy more gold.

Gold is expected to perform well in 2023, said Kotak Securities. "Physical demand for gold bars and coins remains strong, spurred by ongoing inflation concerns and geo-political and financial market risks."


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