Gold Mid-Year Outlook 2023

Between a soft and a hard place

About the World Gold Council Contents
We’re the global experts on gold. Between a soft and a hard place 2
Leveraging our broad knowledge and experience, we work to Gold in the top tier 2
improve understanding of the gold market and underscore gold’s
End of tightening in sight 3
value to individuals, investors, and the world at large.
Upside with risks 4
Collaboration is the cornerstone of our approach. We’re an
association whose members are the world’s most forward- Asymmetrical benefits 4
thinking gold mining companies. Combining the insights of our
In sum… 5
members and other industry partners, we seek to unlock gold’s
evolving role as a catalyst for advancements that meet societal
needs.
We develop standards, expand access to gold, and tackle barriers
to adoption to stimulate demand and support a vibrant and
sustainable future for the gold market. From our offices in Beijing,
London, Mumbai, New York, Shanghai, and Singapore, we deliver
positive impact worldwide.

For more information

Research:

Jeremy De Pessemier, CFA Louise Street

jeremy.depessemier@gold.org louise.street@gold.org
+44 20 7826 4789 +44 20 7826 4765

Johan Palmberg Ray Jia

johan.palmberg@gold.org ray.jia@gold.org
+44 20 7826 4786 +86 21 2226 1107

Krishan Gopaul
krishan.gopaul@gold.org
+44 20 7826 4704

Juan Carlos Artigas

Global Head of Research
juancarlos.artigas@gold.org
+1 212 317 3826

Market Strategy:

Joseph Cavatoni John Reade

Market Strategist, Market Strategist, EMEA and
North America Asia
joseph.cavatoni@gold.org john.reade@gold.org
+1 212 317 3844 +44 20 7826 4760

Gold Mid-Year Outlook 2023 | Between a soft and a hard place 01

Between a soft and a hard place

Developed market central banks are nearing the end of their tightening
cycles.1 For now, market consensus points to a mild contraction in the
US in late 2023 and slow growth in developed markets. But given the
historical lag between monetary policy and economic performance,
investors are wary that a hard landing may be still to come.
In this context and following gold’s positive returns in H1, we expect
gold to remain supported on the back of rangebound bond yields and a
weaker dollar. Gold should experience stronger investment demand if
economic conditions deteriorate. Conversely, a soft landing or much
tighter monetary policy could result in disinvestment (Figure 1).

Gold in the top tier Chart 1: Gold has been a top performing asset in 2023
Y-t-d return in USD of major assets*
In the first half of the year, gold increased by 5.4% in USD S&P 500
– closing June at US$1,912.25/oz. 2 Gold outperformed all MSCI EAFE
other major assets apart from developed market stocks Gold (US$/oz)
(Chart 1). MSCI EM
US cash
Gold not only contributed positive returns to investor
US bonds
portfolios, it also helped dampen volatility throughout H1,
Global bonds ex US
especially during the mini-banking crisis in March. DXY
Behind gold’s performance was a combination of factors: Commodities
Oil
• a relatively stable US dollar and interest rates 3
-15% -10% -5% 0% 5% 10% 15% 20%
• event risk hedging
y-t-d return
• continued central bank demand.
*As of 30 June 2023. Data based on the S&P 500 Index, MSCI EAFE Index,
LBMA Gold Price PM, MSCI EM Index, ICE BofA US 3-month T-Bill Index,
Bloomberg US Bond Agg, Bloomberg Global Bond Agg ex US, US dollar DXY
Index, Bloomberg Commodity Index, and Oil WTI Spot.
Source: Bloomberg, World Gold Council

Figure 1: There’s potential upside for gold in 2023, but risks persist
Gold’s indicative performance based on various hypothetical scenarios*

*See Figure 2 for a detailed review of the macroeconomic and financial conditions of each scenario. Analysis based on WGC’s Gold Valuation Framework. For
equivalent scenarios based on Oxford Economics data, visit Qaurum.
Source: Bloomberg, World Gold Council

1 As of 30 June, bond markets are pricing in an additional 25-40 bps in rate 2 Based on the LBMA Gold Price PM USD as of 30 June 2023.
hikes by the US Fed, 50 bps by the ECB, and 100bps by the BoE between 3 Most US Treasury yields with maturities of two or more years remained
now and the end of the year before pausing or even cutting rates. relatively rangebound throughout H1 especially when compared to 2022.

Gold Mid-Year Outlook 2023 | Between a soft and a hard place 02

End of tightening in sight While slow economic growth in the West may have a
negative effect on consumer spending, we anticipate that
the Indian economy will hold up better and China will
Both the European Central Bank (ECB) and the Bank of
respond to potential economic stimulus later in the year
England (BoE) increased interest rates in June, but the US
providing some support to local demand. 10
Fed kept its target rate unchanged in order to let the
effects of the tightening cycle make their way through the In addition, despite signs of cooling inflation, the
real economy. 4 US bond market participants expect an combination of stock market volatility and ‘event risk’ (such
additional hike by the Fed this year, most likely in July, as geopolitical or financial crisis) is likely to keep hedging
followed by a sustained ‘hold’ period. 5 And while bond strategies, including gold, in place (see Asymmetrical
markets expect the ECB and the BoE to further increase benefits, p.4).
target rates, markets anticipate the end of the cycle is near
Further, based on market consensus expectations, slightly
– or at least it will be by the end of the year. 6
lower interest rates and a weakening US dollar will help
As monetary policy likely transitions from tightening to on- gold by reducing its opportunity cost for investors. This is
hold, market consensus is for a mild contraction in the US consistent with the three previous hold cycles, which have
this year, and slow growth in developed markets. 7 lasted between six and 12 months. During these periods,
gold had an average monthly return of 0.7% – equivalent to
Should this scenario play out, our analysis suggests that
an 8.4% annualised return – and above its long-term
gold will remain supported in 2023, especially given its
performance (Chart 2, p.4). As we have discussed in the
robust performance in H1. 8 But it may not break out
past, this generally happens because gold is influenced by
significantly from the range we have seen so far this year. 9
bond yields rather than actual policy rates, as the former
This is a by-product of the four key drivers that determine include market expectations of future policy decisions and
gold’s performance (Figure 2): the likelihood of a subsequent recession. 11
• economic expansion With monetary policy so tight, many investors are also
• risk looking at the Institute for Supply Management (ISM)
• opportunity cost Purchasing Managers’ Indexes (PMIs) as signals of future
• momentum. weakness. Indeed, developed market PMIs (both
manufacturing and services) have been deteriorating in
recent months.

Figure 2: Detailed macroeconomic scenarios for H2 2023

*Corresponds to Bloomberg consensus as of 30 June 2023. Fed funds (FF) refers to the upper bound Fed funds target rate. DM stands for developed markets.
Gold implications based on Gold Valuation Framework. Equivalent hypothetical scenarios also available at Qaurum.
Source: Bloomberg, World Gold Council

4 The Fed shifts into wait-and-see mode (rbcwealthmanagement.com) 9 The LBMA Gold Price PM mostly ranged between US$1,800/oz and
5 Implied probability based on Fed fund futures as of 30 June 2023. Bond US$2,000/oz during H1.
markets are also pricing in rate cuts as early as Q3 2024. 10 India economy: Why everyone wants to work with the world's largest
6 Implied probability based on overnight index swaps as of 30 June 2023. democracy | CNN Business; China's disappointing rebound could bring in
more stimulus, economists say (cnbc.com)
7 Based on Bloomberg Consensus expectations as of 30 June 2023.
11 In our analysis, 10-year US Treasury yields have shown higher explanatory
8 Analysis based on our Gold Valuation Framework. power.

Gold Mid-Year Outlook 2023 | Between a soft and a hard place 03

Chart 2: Gold has had a positive average return in
periods when the Fed is on hold
Upside with risks
Gold monthly returns during Fed on-hold periods* If the recession risk increases, gold investment could see
greater upside. An economic deterioration could be driven
by a significant increase in defaults following tighter credit
conditions or other unintended consequences of the high-
rate environment. Historically, such periods have resulted in
higher volatility, significant stock market pullbacks, and an
overall appetite for high quality, liquid assets such as gold
(Chart 4).

Chart 4: Gold has historically performed well during

recessionary periods
Gold and the USD during recessions*
NBER Recessions
Jan/20-Apr/20

*As of 30 June 2023. On-hold periods include: 6/2000–12/2000; 7/2006–8/2007; Nov/07-Jun/09

and 1/2019-6/2019.
Feb/01-Nov/01
Source: Bloomberg, World Gold Council
Jun/90-Mar/91
Jun/81-Nov/82
Our analysis shows that gold tends to outperform equities Dec/79-Jul/80
when manufacturing PMI is below 50 and falling (Chart 3).
Oct/73-Mar/75
Further, if PMI falls below 45, history suggests gold’s
outperformance may be even more pronounced. And while Nov/69-Nov/70

gold has underperformed against equities if manufacturing -10% 0% 10% 20% 30%
PMI is below 50 but rising, it has still delivered positive DXY Gold Return
returns, showcasing the asymmetrical benefits it tends to
*As of 30 June 2023. Based on LBMA Gold Price PM and US dollar DXY Index.
bring to portfolios.
Source: Bloomberg, NBER, World Gold Council

Chart 3: Gold outperforms stocks in periods when PMI

declines but still captures the upside if it rises On the flipside, expectations of a soft landing – where a
3-month forward returns for gold and stocks when ISM recession is avoided but monetary policy remains tight –
manufacturing PMI is below 50* could create headwinds for gold and result in
Fwd rtn (%) disinvestment. For example, gold ETFs saw sizable
4.0% outflows in June and gold holdings have fallen year-to-date.
3.5% It is worth noting, however, that given gold’s positive
3.0% performance in H1, an investor unwind would need to be
2.5% severe to result in the average 2023 gold price falling below
2.0% US$1,800/oz – its 2022 average. 12

Asymmetrical benefits
1.5%
1.0%
0.5%
As investors assess the impact of restrictive monetary
0.0% policy and the possibility of a recession, they often dial up
Declining regime Rising regime
defensive strategies in their asset allocation.
3-month fwd returns - Gold 3-month fwd returns S&P500
For example, a common approach is to rotate part of the
*As of 30 June 2023. equity exposure into defensive sectors to limit losses
Source: Bloomberg, ISM, World Gold Council during a significant market drawdown.

12 Our Gold Valuation Framework relies on annual average returns rather than annual average to fall below last year’s average of US$1,800/oz. Such a
end-of-year to end-of-year comparisons. This is because it takes into steep and sustained decline seems historically unlikely considering that the
consideration the interaction of all segments of gold demand and supply. LBMA Gold Price PM as of 30 June 2023 was US$1,912.25/oz and given
Year-to-date, the LBMA Gold Price PM has averaged US$1,932/oz. As such, the current macroeconomic conditions.
gold would need to trade at an average US$1,668/oz in H2 for the full 2023

Gold Mid-Year Outlook 2023 | Between a soft and a hard place 04

To illustrate this, we compare two hypothetical defensive
strategies: one where 20% of the equity allocation is In sum…
invested in defensive sectors, and one where 10% is
Should the expected mild US contraction materialise, the
invested in defensive sectors and 10% in gold (Table 1).
strong first half for gold is likely to give way to a more
Our analysis shows that, over the past 25 years, the neutral H2.
strategy including gold would have improved returns, while
In this scenario, gold would draw support from a weaker
reducing volatility and drawdown.
US dollar and stable bond yields, although this would be
Table 1: Gold may help improve defensive strategies met by downward pressure from cooling inflation. If history
Comparison of hypothetical investment strategies* is a guide, monetary policy hold cycles tend to spell a
higher-than-average monthly return for gold.
Baseline Defensive Defensive
strategy strategy (a) strategy (b)
A more positive gold environment would result from a
S&P 500 100% 80% 80% more pronounced economic downturn, thanks to an
Defensive sectors 20% 10% accompanying increase in volatility and risk-off appetite.
Gold 10%
Conversely, gold would face challenges if tightening
Total 100% 100% 100%
continues for longer than expected. Similarly, if a soft
Annualised returns 7.0% 7.7% 8.4%
landing were engineered, it would favour risk-on assets and
Volatility 15.5% 15.0% 14.6% a stronger US dollar, likely resulting in gold disinvestment.
Reward to risk 45.3% 51.4% 57.2%
However, given the inherent uncertainty in predicting the
Drawdown -50.6% -48.0% -44.1%
global macroeconomic outcome, we believe that gold’s
*Based on data from December 1998 (due to data availability) to May 2023.
Defensive sectors include Consumer Staples, Energy, Healthcare, Telecom, and
positive asymmetrical performance can be a valuable
Utilities. Hypothetical strategy invests in defensive strategy at the peak and component to investors’ asset allocation toolkit.
disinvests at the trough.
Source: Bloomberg, World Gold Council

Gold Mid-Year Outlook 2023 | Between a soft and a hard place 05

Important Information and Disclosures Nothing contained herein is intended to constitute a recommendation,

© 2023 World Gold Council. All rights reserved. World Gold Council and the investment advice, or offer for the purchase or sale of gold, any gold-related

Circle device are trademarks of the World Gold Council or its affiliates. products or services or any other products, services, securities, or financial
instruments (collectively, “Services”). This information does not take into
All references to LBMA Gold Price are used with the permission of ICE
account any investment objectives, financial situation or particular needs of
Benchmark Administration Limited and have been provided for
any particular person.
informational purposes only. ICE Benchmark Administration Limited accepts
no liability or responsibility for the accuracy of the prices or the underlying Diversification does not guarantee any investment returns and does not
product to which the prices may be referenced. Other content is the eliminate the risk of loss. Past performance is not necessarily indicative of
intellectual property of the respective third party and all rights are reserved future results. The resulting performance of any investment outcomes that
to them. can be generated through allocation to gold are hypothetical in nature, may
not reflect actual investment results and are not guarantees of future results.
Reproduction or redistribution of any of this information is expressly
WGC does not guarantee or warranty any calculations and models used in
prohibited without the prior written consent of World Gold Council or the
any hypothetical portfolios or any outcomes resulting from any such use.
appropriate copyright owners, except as specifically provided below.
Investors should discuss their individual circumstances with their
Information and statistics are copyright © and/or other intellectual property
appropriate investment professionals before making any decision regarding
of the World Gold Council or its affiliates (collectively, “WGC”) or third-party
any Services or investments.
providers identified herein. All rights of the respective owners are reserved.
This information contains forward-looking statements, such as statements
The use of the statistics in this information is permitted for the purposes of
which use the words “believes”, “expects”, “may”, or “suggests”, or
review and commentary (including media commentary) in line with fair
similar terminology, which are based on current expectations and are
industry practice, subject to the following two pre-conditions: (i) only limited
subject to change. Forward-looking statements involve a number of risks
extracts of data or analysis be used; and (ii) any and all use of these
and uncertainties. There can be no assurance that any forward-looking
statistics is accompanied by a citation to World Gold Council and, where
statements will be achieved. WGC assumes no responsibility for updating
appropriate, to Metals Focus, Refinitiv GFMS or other identified copyright
any forward-looking statements.
owners as their source. World Gold Council is affiliated with Metals Focus.
WGC does not guarantee the accuracy or completeness of any information Information regarding QaurumSM and the Gold Valuation Framework
nor accepts responsibility for any losses or damages arising directly or
Note that the resulting performance of various investment outcomes that
indirectly from the use of this information. This information is for
can generated through use of Qaurum, the Gold Valuation Framework and
educational purposes only and by receiving this information, you agree with
other information are hypothetical in nature, may not reflect actual
its intended purpose.
investment results and are not guarantees of future results. WGC provides
no warranty or guarantee regarding the functionality of the tool, including
without limitation any projections, estimates or calculations.

Gold Mid-Year Outlook 2023 | Between a soft and a hard place 06

World Gold Council
15 Fetter Lane, London EC4A 1BW
United Kingdom

T +44 20 7826 4700

F +44 20 7826 4799
W www.gold.org

Published: July 2023