Systemic risks such as the rising trade war, recession, and financial markets instability have already driven gold up in the second half of this year, and this trend is expected to continue throughout 2023. However, there is still a long way to go before the precious metal makes a meaningful return, as global production has been decreasing.
Global gold production
The global gold production forecast has fallen by three percent in the first nine months of the year. In spite of a strong increase in demand for jewelry, a large sell-off in the U.S. stock market in February provided a boost to safe-haven demand for the precious metal. However, the main downside risk is political uncertainty.
Gold is a valuable investment with a range of uses, including industrial and jewelry applications. It is a stable and secure alternative asset that has been proven to protect consumers and investors from the volatility of the stock market and inflation. Until recently, gold was regarded as a monetary metal. During precolonial times, it was exported from Ghana to Europe via the trans-Saharan trade route. Today, most gold mined in China is used for jewelry.
Gold prices in non-dollar economies
Gold prices are a key indicator of economic conditions abroad says iracompaniesgold.org. Buying gold in foreign currencies is an effective hedge against currency depreciation. In particular, it can help to mitigate the impact of a weak dollar. However, if the dollar remains weak, it could mean lower gold prices for foreign buyers.
In addition to currency values, other factors such as monetary policy and inflation also play a role in gold’s price. This is particularly true when the country is not a member of the dollar-based global trading system.
The market has experienced a surge in demand for gold in non-dollar economies, such as Russia. According to the Russian central bank, it added 208 metric tonnes of gold to its reserves in 2015.
While the Russian gold price is impressive, it’s the Chinese gold price that is truly notable. The Shanghai Composite Index has dropped nearly 45 percent in the last six months, prompting retail investors to look toward safe haven assets.
Barrick Gold warns it might write-down $3 billion in goodwill and asset impairments
Barrick Gold Corporation warned shareholders that it may write-down as much as $3 billion in goodwill and asset impairments. The company’s shares are down 53 percent this year.
Barrick has been trying to reduce its debt, and has already sold some of its assets. It plans to trim its debt from $10 billion to $8 billion in the next few years. It is also forming partnerships to cope with low prices.
The global mining industry has been hit hard by the commodity market slump. Prices have fallen 40 percent since the 2011 peak. This has pressured miners to cut costs. As a result, Barrick has slashed spending on capital projects and lowered its debt level. However, the company’s production growth profile has been weak.
An equity bear market could be catalyst for gold to break out of slump
Gold is a hot commodity, but it is hardly a surefire safe haven. In fact, it has lost more than 10% of its value in the past month. Despite the decline, it has still managed to make some significant gains in the last two weeks.
This week, the S&P 500 set new lows. The stock market has regularly wiped out the earlier gains in the past.
Fortunately, it is not uncommon to see a correction, which could lead to new all-time highs in the coming months. However, the S&P has a long way to go to reach these levels.
On the flip side, the dollar has become the preferred safe haven worldwide. Considering that the US Federal Reserve Bank has been talking tough about inflation, the dollar has been on the upswing for most of the year.