In what has been a tumultuous year for markets, the price of gold has somehow managed to almost return to where it started. Having entered the year just beyond $1,800 per ounce, the valuable metal sat at $1,796 per ounce as of the middle of December. Investors of all stripes understand that there is serious uncertainty ahead next year, but here are a few of the key indicators to keep an eye on for gold’s fate next year, accessible with physical bullion in the Sprott Physical Gold Trust (PHYS).
PHYS provides investors an opportunity to play a number of possible outcomes next year relating to gold. The most obvious factor may also be the most impactful when it comes to gold: the Fed and the fight against inflation.
While the Fed’s interest rate hikes, including this week’s 50 basis point hike, have made yields a big competitor for gold in attracting investors, gold has held up a bit better than some may have expected thanks to rising demand from inflation and geopolitical turmoil. Should the Fed induce a recession with its hunt to kill inflation, meanwhile, it could benefit gold as the Fed takes a hard pivot to stop a nascent recession and as investors look to gold in a recession as a defensive play.
Rates have also seen the dollar strengthen notably, which has offered investors another alternative to gold. Still, the concerning underlying factors that have investors sounding the alarm to the Fed that the rate hikes are indeed having an impact could help gold as well by cutting down the dollar somewhat.
Meanwhile, returning to geopolitical factors, this year saw central banks buying up gold due to the volatility of currencies in which they park their foreign exchange reserves, while others in Europe may be concerned by the Russian war on Ukraine. If China’s economy rebounds as well, that would see additional consumer demand for gold.
With so many possible opportunities for gold, investors may want to keep a close eye on PHYS. The fund charges a 41 basis point management fee, with its returns up over one month to 8.2% compared to its YTD return of -3.9% on a NAV basis. For investors readying themselves for a lot of volatility and uncertainty next year, PHYS could be a candidate as a reliable way into physical gold bullion.
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