What A Year For Gold and Silver!
What a year! Gold has weathered the storm well, with silver and gold ending the year with a rally
If we took ourselves back to last Christmas, when the world was still struggling with Covid, few would have imagined how 2022 would unfold.
For precious metals it’s been a challenging year, with the gold price having the longest bear (downward) run for years, with silver down 14% on the year up to mid-November. But interest in precious metals has been incredibly strong; national mints have struggled to keep capacity in step with demand and at a macro level, central banks have bought more gold in 2022 than since 1967.
At MyGold we’ve had our hands full all year, meeting Kiwi demand.
It’s been well documented that both gold and silver prices have been held back by other factors and that once removed, both metals will surge. Even as I write (21.12.22), there is evidence of this, with both silver and gold surging due to the weakening USD (silver up 5.44% and gold up 2.14% overnight). Let’s have a quick look at the big events in 2022 and how precious metals reacted.
Putin’s move to ‘liberate’ Kiev
On February 24th, Putin’s forces entered Ukraine. Whether an invasion or a liberation, the initial plans were to enter Kiev in days and install a new pro-Kremlin government. At the end of December 2022, the situation is very different, with Ukraine and Russia in virtual stalemate as winter sets in. Of more concern is a possible escalation beyond Ukraine and the use of strategic nuclear weapons. Gold traditionally reacts strongly to adverse geopolitical news, but aside from a spike in prices in early March, gold hasn’t reacted much in relation to Ukraine. We believe that this is a false dawn, and should there be escalation of the war, gold prices will react upwards in a way we have not seen in 2022. We’re also keeping an eye on Taiwan as tensions are likely to rise here too.
Inflation, high interest rates and market turmoil
2022 was going to be tough anyway coming out of Covid, but with the added challenges of the Ukraine war, sanctions and subsequent energy price surges, the developed world economy has been thrown into chaos. Inflation was a challenge after the pandemic, with surging demand and limited supply, but with Putin’s actions this has been turbo-charged. Historically, inflation has been a positive for gold, as investors buy the metal as a safe-haven asset. This is reflected in the record amount of gold bought by central banks in 2022, 28% up year on year (World Gold Council).
The ‘hero to zero’ rise and crash of Sam Bankman-Fried (SBF) and his cryptocurrency business FTX has been riveting. But not so riveting for the 1m plus investors who lost their investments, and the crash of the $34bn crypto exchange. SBF was seen as the future – a maverick, eccentric entrepreneur whose magnetism drew in respectable institutional investors like Blackrock and Sequoia Capital. Bang. The fragility, not to mention the unpredictability of cryptocurrencies and the solvency of large exchanges, has put the spotlight on gold. Tangible, physical and a real source of wealth.
US Dollar rules
In 2022, the US dollar surged and surged, as other global currencies went in the opposite direction. The US reserve currency was seen as a safe haven, and the stronger it became, more fuel was added to the fire, driving it ever upwards. The Euro was in parity with the USD for the first time; The Pound was at 1.03 to the USD at one stage (normally around 1.40) and the Japanese Yen dropped to 150 vs the USD in October, a 30 year low. The USD strength has had an adverse effect on the price of gold and held back the price by at least NZ$250 an ounce according to analysts. We see a large correction coming sometime in the future, and when this happens, gold and silver prices will surge. As for gold’s performance in 2022, there is an interesting twist. In USD terms, gold has been almost flat in 2022, falling 0.74% over the year. But if calculated in NZ$, gold has performed OK, with a 6.8% increase (as of 21.12.22). Silver is even greater, with a 12.65% increase in the year in NZ$ (+6.26% in USD). As an analyst wrote recently (Investing News, December 2022), the yellow metal had held its value well in today’s inflationary market. One thing is for sure, it’s been a better investment than the stock market or cryptocurrency in 2022.
In Gold we Trust. 👑
Here are a few snippets for the week: