We may look back on 2022 as a pivotal moment in history, marking the end of one era and ushering in a new one.
Major war and nuclear threats returned to Europe, fueling already high inflation and pushing many countries into an energy crisis.
And to make matters worse, the world’s leading economists spent most of 2022 saying that if the global economy wasn’t already in a recession, it would soon fall into one.
All these recent developments have shaken up the investment world, prompting many to rethink their investment strategies.
With 2022 coming to an end, we've rounded up the top seven global events of the year to see how they affected the global market and physical gold investors and what they could mean for the year ahead.
1. Russia invades Ukraine
Russia’s invasion of Ukraine on February 24, 2022, has spiraled into the largest conflict in Europe since World War Two, killing tens of thousands of people and forcing millions from their homes.
With no ceasefire in sight, this war has caused extensive damage to Ukraine and has had some major global repercussions, such as worldwide food shortages, Europe's energy crisis, mounting geopolitical tensions, and rising inflation.
💡Read our SPOTLIGHT to see how the Ukraine war may have impacted your investments.
2. Inflation returns
2022 saw inflation skyrocket around the world, prompting many governments into damage control mode.
To bring down record-high prices, The U.S. Federal Reserve and other central banks have hiked interest rates several times in 2022, with more increases expected to come soon.
Now, this cure for inflation may be a double-edged sword: rising interest rates can bring it under control, but that same remedy could potentially trigger a recession.
💡Take a look at our SPOTLIGHT for some practical tips on fighting inflation.
3. Recession fears grow
So, the big question is: can red-hot inflation be defeated without tipping the economy into a recession?
Economists polled by Bloomberg in December placed the chances of a U.S. recession in 2023 at 70%, with the projections arriving days after the latest rate hike from the Fed.
Due to their geographic location, E.U. countries are more susceptible to the ripple effects of the Ukraine war and disruptions in the energy market. Persistently high energy prices have fuelled inflation, putting a strain on households and businesses.
These worrying trends have led economists to conclude an EU-wide recession is somewhat inevitable.
💡How to prepare for a recession: 5 things you need to know.
4. Turmoil rocks the U.K. economy and politics
In 2022, the U.K. had three prime ministers in just two months and lost its longest-reigning monarch.
Liz Truss, who succeeded Boris Johnson after a series of scandals, lasted just 45 days (the shortest tenure of any British prime minister in history), mostly because of her aggressive tax-cutting policy that sent the value of the British pound plummeting.
Rishi Sunak, Britain’s first prime minister of color, is now leading the country that finds itself in a serious cost-of-living crisis, with inflation topping 10%.
5. Crypto industry is tormented by scandals
The crypto industry is on a whirlwind ride toward 2023.
Over the past year, it has been tormented by scandals, devastating company collapses, falling cryptocurrency prices, and investors fleeing the industry for safer havens.
The companies like BlockFi, Celsius, and Terra are just a few that have closed down this year. Of those, the collapse of FTX weighed the heaviest on the crypto market. But some predict 2023 might be the year of “a great reset” for the crypto industry.
💡Read our SPOTLIGHT to learn the basics about cryptocurrencies.
6. U.S.-China tensions rise
China’s combative response to U.S. House Speaker Nancy Pelosi’s visit to Taiwan in August showed just how tense relations had grown between Beijing and Washington.
Aside from that, U.S. President Joe Biden’s ban on semiconductor exports to China is seen as one of the most important policy moves of the year that many analysts say could set off a new geopolitical quake.
💡Read our SPOTLIGHT to find out how geopolitical tensions can affect gold.
7. Covid eases
Finally, here comes some good news for the year.
Three years after COVID first emerged, we've turned the corner on the first global pandemic in a century. Many countries abandoned the lockdowns and travel restrictions imposed in early 2020.
An exception to this trend was China, which pursued a zero-tolerance policy that sparked public anger and a wave of protests.
According to a fresh study, China could see over 1 million deaths from COVID-19 in 2023.
Which of these events affected gold the most?
For gold, the main three political and economic developments of 2022 were high global inflation, the war in Ukraine, and interest rate hikes by the Fed.
The gold price reached a new all-time high of $2,070 an ounce in March 2022, right after Russia’s invasion of Ukraine. In just a week, the gold price rose as much as 10%!
Nicky Shiels, Head of Metals Strategy at MKS PAMP, explains why:
⭐ “The war catalyst triggered [gold] prices which were contentedly in the $1,800-1,900 range and brought attention to gold's role as both a geopolitical hedge and a reliable inflation hedge.”
However, the Fed’s aggressive rate hikes later in the year strengthened the U.S. dollar, thus putting pressure on the gold price and offsetting gains from high inflation and the war.
💡Read our SPOTLIGHT to learn more about the relationship between the gold price and the U.S. dollar.
“A series of super-sized 75-bp rate hikes, a round of ‘hits’ not seen since the 1980s, resulted in outsized strong repricing in both the U.S. dollar and real rates. Those are both core macro drivers of holding bullion, and thus, the Fed's fight against inflation was ultimately a larger headwind which more than offset any bullish arguments stemming from ongoing war and inflation,” Nicky Shiels says.
🤔 So, what’s the forecast for 2023? Apparently, gold may benefit from fading concerns about Fed rate hikes.
“Overall, with the main overhang (supersized Fed hikes) largely behind the market into 2023 as inflation falls and growth stumbles, we [MKS PAMP] remain more constructive [about] gold prices, with an average 2023 forecast of $1,880/oz.”
What’s the bottom line?
Certainly, 2022 was a challenging year for many of us. As we’re getting ready for a fresh start, here are some political and economic events to follow in 2023:
- The ongoing war in Ukraine
- Eurozone economies likely falling into a recession
- Continued effects of Covid, especially in China
- Slowing yet still high inflation
- Possibly deepening U.S.-China tensions
As always, we will keep a close eye on what happens next. For now, let’s make a wish… 🌠