Q: What are the World Gold Council’s (WGC) expectations for gold prices in 2023?
A: WGC provides investors with a very robust framework to think about gold in the macroeconomic context. We help investors understand how gold may react given certain microeconomic conditions. Our outlook, published at the beginning of December, focuses on three broad scenarios that may play out in the market this year.
First, a relatively short-lived and shallow recession that may impact developed markets more could materialize. Second, there is also the possibility that the recession becomes widespread and goes global. The third scenario is that of a so-called ‘soft landing,’ where central banks can tame inflation without necessarily pushing the global economy into a recession.
In a recessionary environment, gold historically tends to perform well. So, if the world faces a recession, we expect gold to perform well depending on how broad, widespread and deep the recession is. The stronger the recession is, the more likely gold will react positively because investors may turn to it as a safe haven.
If we see a soft landing and an economic recovery as well as a pickup in consumer demand for jewelry and technology, the investment demand might not be as strong. Therefore, gold could either remain flat or face some challenges. We do not see this as a major risk considering the current trends but the possibility nevertheless exists.
Q: What has the council observed regarding investor behavior around gold during the COVID-19 pandemic and beyond?
A: There were strong investment flows in 2020. Gold ended the year close to 25% higher than when it started. This was in part supported by investment flows coming not only from gold-backed exchange-traded funds (ETFs) – almost $50 billion in total – but also from the gold bar and coin market. Western countries, especially, revealed their strength. In this period, faced with so much uncertainty, investors wanted to build risk aversion strategies in their portfolios. Gold, due to its comparatively low volatility and negative relation to stocks and other assets, has performed well as a solution.
Also, in March 2020, when COVID-19 was really starting to expand, the global economy started to have jitters, investors grew concerned and the bid-ask spreads for financial assets widened. When a lack of liquidity develops, large bid-ask spreads become increasingly common. In contrast, gold’s bid-ask spreads remained relatively tight, even tighter than long-term US treasuries.
Finally, even though all markets were disrupted from a supply chain perspective, the gold market was able to better absorb the shock because of its geographical diversity. Gold is mined on every continent except Antarctica and kept as an asset all around the world, which was enough to satisfy some of the demand when operations were halted.
Q: What is behind the success of WGC’s Retail Gold Investment Principles?
A: Based on our objectives as an organization and feedback from investors, we identified the opportunity to develop a framework to create more accountability and trust in gold markets. The Retail Gold Investment Principles provide best-practice and high-level guidance to bar and coin dealers. The principles go beyond a prescriptive, detailed, one-size-fits-all approach. Instead, it is a framework that creates very intuitive and relevant guidelines that can be adapted for the unique circumstances of each market, its needs and its regulations. It is a work in progress with industry stakeholders currently in seven markets: India, the US, Canada, Germany, the UK, China and Singapore. We have plans to expand it in 2023 and beyond.
Q: What is gold’s role in the development of the energy transition and the implementation of environmental, social and governance (ESG) practices?
A: The development of ESG has been quite interesting. ESG is a crucial part of today’s world and how it evolves. WGC developed in consultation with a wide range of stakeholders and in conjunction with the industry the Responsible Gold Mining Principles and believes that these policies are important for the social and economic development of communities and countries.
The Responsible Gold Mining Principles were launched in 2019 and provide a framework for what constitutes responsible gold mining. Our members have made significant contributions towards the UN Sustainable Development Goals. Gold mining has been able to provide direct financial contributions to the host countries and, collectively, members of the WGC have provided close to US$57 billion to host economies. Additionally, these players employ almost 400,000 people between employees and contractors, all linked to local economies.
Q: What is the WGC expecting for the long-term future of gold and what will its role be as an investment asset and a raw material for diverse applications?
A: Gold has a dual nature. It is a well-established investment asset that plays an important role in protecting wealth and reducing the risks in portfolios, but there is also the consumer side linked to gold’s uses in jewelry and technology.
WGC expects that gold will remain a key asset for society and investor portfolios. One of the trends that we identified is that institutional investors, especially asset owners like pension funds or endowment foundations, are increasingly turning to gold. Furthermore, we expect central banks to continue accumulating gold as part of their foreign reserves.
In addition, as the global economy expands and we rely more on smart devices and electric vehicles that require high-quality electronic components, many require gold because it is an exceptionally reliable conductor. It also does not corrode or oxidize. Its physical and chemical properties make it unique and useful to the technology sector . Gold is also used in healthcare through medical devices and tests.
Gold is a very intuitive asset but investors need to understand that it is multifaceted: it is scarce and always in demand at the same time in one form or another. Gold’s drivers and performance are natural by-product of its dual nature.
The World Gold Council (WGC) is the global gold industry’s market development organization. It works across all sectors of the industry, from investment to gold mining, to stimulate and sustain demand for gold.