VINACHEM

Gold broke US$2,000 in the spring of 2022, but soon fell back a few pegs. Many market watchers are now wondering, “When will gold go up?”

Of all the metals on Earth, gold shines the brightest when it comes to holding its value and being a vehicle for building and preserving wealth. In fact, the gold price is up over 400 percent compared to 20 years ago.

Despite that impressive increase, many investors are still wondering, “When will gold go up?”

The precious metal is a safe-haven asset that performs well in tumultuous times, and there have been plenty of global crisis events in the past few years — most recently the socioeconomic fallout from the COVID-19 pandemic, and the politico-economic repercussions stemming from Russia’s war in Ukraine.
There are plenty of gold bulls calling for the price of the yellow metal to double or even triple. Nevertheless, answering the question, “When will gold go up?” is a bit of a guessing game, even for veteran gold market analysts.

That said, there are certain time-tested indicators for when gold will go up that market participants can track in order to make a more educated guess about the precious metal’s future price action.

What factors make the gold price go up?

If you want to know when gold will go up, the yellow metal’s past performance is a good place to start. Let’s start with a look at its price action during the breakout of the Russia-Ukraine war.

The gold price started 2022 at around US$1,800 per ounce. When Russia invaded Ukraine on February 24, gold was trading at US$1,864. Less than two weeks later, as fears of the inevitable global economic fallout reached a crescendo — in concert with rising global inflation, which increases the allure of safe-haven assets — the yellow metal broke through the US$2,000 level to hit an all-time record high of US$2,074.60 on March 8.

However, gold’s time above US$2,000 was short-lived. Inflationary pressures led central banks around the world, including the US Federal Reserve, to raise interest rates in an effort to cool demand. Rate hikes are generally negative for gold because when rates are higher, investment products that accrue interest are more profitable than the precious metal. With every oversized rate hike the Fed has enacted in 2022, the price of gold has taken a slight hit, sliding by about US$300 since reaching that record high in March.

And yet, gold ended the first half of the year around the same price at which it began, supported by multi-decade highs for inflation and ongoing geopolitical uncertainty. In fact, the yellow metal was one of the best-performing asset classes in the first half of the year, including in comparison to stocks and inflation-linked bonds.

“The combination of a high-risk environment both from inflation and geopolitics made gold a very valuable asset for investors, as they were seeking high-quality, liquid stability — liquid assets to hedge their portfolios amid a very poor-performing financial market in general, both from an equity and bond market perspective," Juan-Carlos Artigas, head of research at World Gold Council (WGC), told the Investing News Network (INN).

Gold’s ability to withstand political and economic turmoil has been on full display the past few years. “Because you can see in 2019, gold was US$1,300 an ounce, then it got to over US$2,000 in August of 2020. And it got to over US$2,000 again in March of 2022,” said Jeffrey Christian, managing partner at CPM Group, during his June presentation at the Prospectors and Developers Association of Canada (PDAC) conference.

Investors interested in understanding when the gold price will go up should keep an eye on the Fed’s interest rate plans for the remainder of 2022 and into 2023. Some analysts are forecasting that higher interest rates will undoubtedly push the economy into a recession, at which time the central bank may begin to reverse course, lowering interest rates to jump start a recovery.

Gerardo Del Real, co-owner of Resource Stock Digest and Digest Publishing, believes the Fed’s hawkish stance won't last long. "I think we're about a quarter or two away from the Fed not being able to be as aggressive as it's being with the rate hikes right now," he said in late July, "I think that's when gold is going to break out.”

There are indications that the Fed's interest rate hikes may peak in January 2023; however, San Francisco Fed head Mary Daly said in mid-August that she sees interest rate hikes continuing well into 2023.

How do supply and demand affect the gold price?

As mentioned, when it comes to the outlook for gold, investors should continue to watch for destabilizing geopolitical events, the ongoing socioeconomic impact of the COVID-19 pandemic, future Fed rate changes and ongoing trade tensions between China and other G7 countries, including the US, Canada and Australia.

But what about gold supply or gold demand? The WGC’s 2021 report on the market indicates that last year gold mine production recovered by 2 percent, while total gold supply declined by a marginal 1 percent compared to 2020. The WGC attributes that slide to an 11 percent decline in gold recycling.

Looking at the numbers for the first half of 2022 in the WGC’s most recent trends report, gold bars and gold coin investment witnessed a 12 percent year-over-year drop to 526 metric tons (MT), mainly on declining Chinese demand. Lockdowns under the country’s strict zero-COVID policy have impeded consumer access to retail outlets. However, increased buying in India, the Middle East and Turkey helped to pick up some of the slack in demand.

Demand for gold jewelry in the second quarter of 2022 was up by 4 percent year-over-year to reach 453 MT, while total H1 jewelry demand was 928 MT, or 2 percent below H1 2021. China and India are the two largest markets for gold jewelry, and both countries’ citizens have seen their purchasing power decimated by the pandemic. Traditionally, gold jewelry is responsible for 50 percent of global gold demand.

Meanwhile, gold exchange-traded funds experienced a rebound in H1 2022, with net inflows totaling 234 MT compared with 127 MT of outflows in H1 2021.

On the industrial side, gold is used in electronics and is benefiting from the rise of nanotechnology. However, this demand segment has also been impacted by weaker demand for consumer electronics, with industrial demand for gold declining by 2 percent year-over-year in Q2 2022 compared to the previous year.

Over the past decade, central banks have become net buyers of physical gold. “H1 net purchases of 270t are virtually in-line with the five-year H1 average of 266t, illustrating the strength of buying amid global instability,” said the WGC. Its annual central bank survey shows that one-quarter of respondents plan to increase their gold reserves in the next year, higher than the one-fifth who planned to do so in 2021.

Will the gold price go up in the future?

Gold broke through the US$2,000 level to reach record highs in both 2021 and 2022, leading investors to dream of another breakout for the precious metal in 2023. Will the gold price post a new record-breaking high soon? Many analysts think there’s enough support for gold prices to once again rise above US$2,000.

CPM Group’s Christian anticipates that gold will trade for US$1,800 in 2023 before making a move to “even higher record prices” on the back of economic woes. “We expect a recession and a financial crisis. We see one on the horizon. We have been projecting for several years that it would occur sometime in the 2024 to 2026 range,” he said at the PDAC convention. "But in our view, the longer we wait until it comes, the higher gold prices will go.”

Speaking at the Rule Symposium in mid-2022, Brien Lundin, editor of Gold Newsletter, reiterated gold’s status as a safe-haven asset, saying, "(gold) preserves your purchasing power, your portfolio and your wealth against not the possibility, but the inevitability, of the depreciation of new currency.”

Lundin pointed to technical chart patterns showing bullish signs of a looming long-term run up in the gold price. “In gold, as you've seen, probably numerous times … (there is) a multi-year cup and handle pattern. It projects to a US$3,000 gold price when that pattern gets resolved,” he said. “Bottom line, despite the recent volatility, despite the declines that we've seen recently, a long-term, money-based gold bull market is in progress."

Gareth Soloway, chief market strategist at InTheMoneyStocks.com, is also bullish on gold. In a June interview with INN, he explained the potential for major upside for the yellow metal over the next six to 12 months.

"Gold is an underinvested asset by a lot of fund managers, and, as you see, a market that isn't getting the returns that it used to,” he said. “You're going to see money looking for the safety of gold, which then will push the gold price up as well.” Soloway sees gold possibly reaching US$2,400 to US$2,500 in the next year.