The largest gold ETF in the world and a holding in our Special Opportunities portfolio, the SPDR Gold Trust (GLD) went nowhere in 2022, down 1% for the year, notes Todd Shaver, editor of Bull Market Report.
While it outperformed the S&P 500 and Nasdaq last year, its performance during a period of runaway inflation and high market volatility has been uninspiring at best, which can mostly be attributed to the strengthening US dollar from monetary tightening during the year.
Gold, long seen as a hedge against volatility and uncertainty hasn’t delivered as was expected of it, and has seemingly lost much of its sheen with the rise of cryptocurrencies as an alternative. However, with crypto markets now in the doldrums, and global financial markets all set to enter a painful recession, gold will start turning a corner in 2023, and reassume its role as a portfolio diversifier.
Given the negative correlation between real interest rates and the price of gold, the largely range bound performance of the commodity is a bit surprising. Now as the Federal Reserve ends this cycle of monetary tightening, and with the US dollar having limited upside potential following its monumental rally this past year, gold remains unshackled from two major macro headwinds.
Beyond this, gold prices currently trade at a key technical level, just scraping its 200-day moving average, the breaching of which could launch a sustained push to higher levels.
We’re not big believers in charts, but many investors are. Other macro factors include the possibility of a deep recession in 2023, which could force the Fed to abandon its inflation target of 2%, and start bringing down rates immediately, creating a strong push higher for gold and other precious metals.
Another long-term trend mainly pertains to the shaky position of the US dollar as the reserve currency, especially following the sanctions on Russia early this year. With this, gold could return to favor as a store of wealth and value in the years ahead, and as always, there are few better ways to gain exposure to gold than the SPDR Gold Trust ETF, with its remarkable execution, experience, and negligible expense ratio.
Much of the world believes in gold as a store of value and a hedge against government monetary printing presses. Gold bottomed at $1030 an oz. in 2016, and since then the asset has performed quite nicely, although flat for 2022. In my view, 2023 just might be the year of the gold comeback.