Any way you slice it, 2022 was a turbulent year, from Russia’s invasion of Ukraine to historic inflation and jumbo rate hikes to multiple failures in the digital asset space. These have had wide-ranging implications for the world of finance that are sure to carry over into next year.
Through it all, gold managed to help investors limit their losses. The yellow metal was one of the very best assets of 2022, down just 1.5%, compared to a loss of more than 19% for the S&P 500 and around a 10% loss for U.S. government bonds.
Not uncoincidentally, the most popular stories of 2022 that were published on usfunds.com all had to do in some way with gold, gold mining stocks or other hard assets. Below are recaps of the five most popular stories in descending order by pageviews.
For frugal travelers, there was no better time to visit Europe than in September of this year. That’s when the euro/dollar exchange rate hit its most favorable level in 20 years, fueled by the Federal Reserve’s aggressive tightening cycle.
But a strong dollar, as you know, can also be kryptonite to gold. The yellow metal declined more than 20% from its 2022 peak in March to the trough in late September, when the exchange rate also found a bottom.
Since then, gold has climbed around 10%, making it one of the most resilient assets of the year. Meanwhile, gold miners, as measured by the NYSE Arca Gold Miners Index, have jumped more than 32% since the late-September bottom.
Lithium stocks continue to look interesting as demand for energy storage technology increases. Asia, and specifically China, has long had an advantage over the rest of the world in producing “white gold” products, but that may be set to change.
Asia Dominates Electric Vehicle EV Battery Manufacturing
In October, the Biden Administration announced it would be awarding nearly $3 billion in grants to some 20 U.S. companies to “expand domestic manufacturing of batteries for electric vehicles and the electrical grid.” The lion’s share of the investment went to three companies—Talon Metals, Piedmont Lithium and Albemarle—all of which are in the process of building new lithium projects here in the U.S.
In his outlook for 2023, respected commodities strategist Ole Hansen said he believes gold could hit $3,000 an ounce once the market realizes that inflation will remain high despite historically aggressive monetary tightening.
I believe it’s entirely possible that the metal could hit $4,000, a price I’ve been forecasting since 2020.
Technically, gold is setting up for a monster rally. Its 50-day moving average has crossed above the 100-day, while gold itself is trading above its 200-day average.
The fundamentals look strong too. Inflation remains stubbornly high, and the U.S. dollar is on the decline. A recession looks all but guaranteed with the yield curve at its most inverted in over 40 years.
Most importantly, central banks can’t get enough of the metal. In the third quarter, official net gold purchases were approximately 400 tonnes, around $20 billion, the most in over a half-century.
Scorching inflation this year recalled similarly high consumer prices in the 1970s. So what investments worked during that decade?
You might not be surprised to learn that gold was the best asset to own in the 70s. The metal went from $35 an ounce at the beginning of the decade to as high as $850 by 1980. Investors sought a hard asset that could go toe-to-toe with inflation and hold its value over time, and gold fit the bill.
But does the thesis still hold up?
So far this century, gold has outperformed the S&P 500 by a factor of three. Not bad for a “barbarous relic” that generates no income.
On August 10, I made the case that gold miners, among the most heavily battered stocks of 2022, were starting to look interesting. Since then, the NYSE Arca Gold Miners Index has increased around 7%, beating the S&P 500, which was down around 9% over the same period.
It isn’t just gold miners’ performance that makes them attractive. As I pointed out to you, dividend yields were the highest I’d seen in nearly a decade.
Gold Stock Dividened Yields Are Highest in Nearly a Decade
Add to that the fact that many producers are starting to generate impressive free cash flow, and this often maligned and ignored industry may be worth your consideration. That’s especially true if you believe a Fed pivot could be in the cards in 2023.
On Behalf Of Our Team At U.S. Global Investors, I Wish Everyone A Happy New Year!
Originally published by U.S. Global Investors on 27 December 2022.
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The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The dividend yield is a financial ratio that tells you the percentage of a company’s share price that it pays out in dividends each year. Free Cash Flow (FCF) is the cash flow to the firm or equity after all the debt and other obligations are paid off.
Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/22): Talon Metals Corp., Piedmont Lithium Inc.
