Gold

Gold tends to outperform in years where the broader markets are underperforming OR when there are fears of a slow down.

We expect gold to outperform in 2023 against a backdrop of increasing interest rates and the heightening probabilities of a global recession.

We don’t think 2023 will be anywhere as bad as the mainstream media says it will be, but enough investors out there will want the safety of gold just in case it is.

As a result, we like to hold gold stocks as part of a larger diversified portfolio just in case the market turns negative at any particular time.

We think 2023 will be golds years for the four following reasons:

1. Gold as a portfolio hedge - Gold is often seen as the best investment exposure when market conditions are rough. Investors have tended to move into and hold onto their gold so as to preserve buying power - we see it as a way of protecting our profits and not giving them back to the markets.
2. Macro uncertainty will mean gold shines - A macro backdrop where inflation is running hot and central banks all around the world are increasing interest rates - we think 2023 will be a year where our Investments in the gold space will outperform.
3. Hated for the last two years - During the 2021 bull market and into 2022 gold was one of the most unloved sectors in the market with most junior gold explorers moving away from the space into battery metals.
4. New discoveries are becoming harder to make - Finding new economic gold deposits is getting harder with explorers having to drill deeper and in more remote locations. Projects with 1-2g/t head grades were previously considered uneconomic, new discoveries at these grades are now being seen as suitable development projects.

We think that a combination of the above factors will mean gold stocks make a comeback in 2023 and outperform the rest of the market.

What do the analysts say

We are also seeing other market players call for a 2023 resurgence in the gold sector:

Goldman Sachs commodities team - Goldman sees the gold price moving to over US$2,000/tonne in 2023. Goldman cites increased risk of a market correction and a rotation towards more defensive assets. The analysts’ commentary from the note puts it as follows: "Growth concerns together with the fall in real rates should trigger a material rotation towards defensive assets" (full report).

Perth based stockbroker Argonauts chairman Eddie Rigg - Eddie is putting money where his mouth is and launched a $50M to invest in undervalued gold companies in October last year. Eddie said the following “We formed a very strong view that we saw good upside on gold and we’ve experienced poor performance, particularly in Aussie gold equities,”

Juerg Kiener, MD and chief investment officer at Swiss Asia Capital - Juerg compares current market conditions to those seen in 2001 and 2008 saying “In 2001, the market didn’t just move 20 or 30%, it moved a lot, the same in 2008 when we had actually a smaller sell-off in the market and the stimulus coming back in, and gold went from $600 to $1,800 in no time, so I think we have a very good chance that we see a major move,”

Gold in the news

CNBC: Gold surges to 6-month high, and analysts expect records in 2023

The Australian Business Review: After game of two halves in 2022, experts predict gold breakout in 2023

Kitco: After game of two halves in 2022, experts predict gold breakout in 2023

What about the bear case?

The two biggest risks to our gold Investment Thesis for 2023 are as follows:

1. No industrial use case - Gold is barely used in industrial applications and so most of the demand for it comes for use in jewellery or as a financial asset (either as investment or for speculative purposes).
2. Bitcoin the new safe haven? - As a financial asset some investors have also shunned gold in favour of bitcoin which for the last ~2 years especially has taken away a lot of the buy side demand for gold.

While the first of these points has always been a risk for gold, we think the cryptocurrency argument is negated by the recent issues in the crypto space.

We are hoping that investors looking for safety turn to gold as they have in the past.