Gold could emerge as a long-term, strategic investible asset, having delivered positive returns in five out of the last seven recessions, the World Gold Council said in its 2023 outlook for the yellow metal. According to the report, in case of a severe recession, hyper-vigilant central banks risk overtightening.

“The hit to both business confidence and profitability would lead to layoffs, driving unemployment higher. This would be a considerably tough scenario for equities with earnings hit hard and greater safe-haven demand for gold and the dollar,” the report said.

At the same time, there are also downside risks to gold via a soft landing scenario, where business confidence is restored and spending rebounds.

“The global economy is facing a crossroads, as major central banks continue their efforts to stifle inflation. Gold’s performance in the new year will be shaped by the intertwining effects of economic growth, interest rates and inflation, in addition to the influence of geopolitics and the still-strong US dollar.

The economic consensus indicates weaker global growth alongside declining — but still elevated — inflation, in addition to minimised rate hikes in most markets.

Amid those conditions, the 2023 outlook for gold is one of stable performance, especially given its role as both a consumer good and investable asset,” said Juan Carlos Artigas, global head of research, World Gold Council.

“However, there is a considerable chance that central banks will over-tighten, leading to a more acute recession. In this scenario, gold’s value as a long-term, strategic investable asset will come into focus, given it has delivered positive returns in five out of the last seven recessions,” he said.

Fed move

According to market analysts, the major factor supporting gold is the expectation of a lower rate hike pace by the Fed. However, the Fed has indicated that the rate hike might go on for longer than previously expected. “The US Producer Price Index for November will give further cues on the inflation situation in the US. PPI data will be followed by CPI and the last FOMC meeting for 2022 in the coming week,” said Ravindra Rao, head of commodity research at Kotak Securities.