By all accounts, Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals firm Lear Capital, says 2022 was a stellar year for gold.
In March, spot gold prices — which indicate the cost of 1 troy ounce of gold in global markets — hit their highest point in more than a year, surpassing $2,000, according to U.S. News & World Report.
Central bank-related demand for gold, which had risen in 2021, reached a record level in 2022. Notable buying activity from banks in emerging markets helped drive the year-over-year increase, according to the World Gold Council, with the People’s Bank of China making the largest purchase.
“Central banks entered the market in 2022,” Kevin DeMeritt says. “They purchased a quarter of all the mining supply, which is a huge jump from [their previous activity]. It makes sense; they get to hold gold, and that’s going to offset some of the inflation pressure on paper debt they hold.”
Overall, gold-related investments provided an average return of 0.44% in 2022.
While — amid high inflation, which at one point topped 9%, and political upheaval, such as the Russian invasion of Ukraine — and as other assets struggled at times last year, the interest in gold soared. That isn’t an uncommon scenario, according to Kevin DeMeritt.
“Gold is often seen as a pretty good hedge against inflation, and tends to rise when the purchasing power of the dollar declines,” he says. “The last time we saw inflation rise [to these recent levels], back in the ’70s, gold was up over 500%.”
What’s in Store for 2023
In the coming months, Kevin DeMeritt anticipates several elements will impact gold’s performance — including continued higher interest rates and inflation challenges. According to the most recent Bureau of Labor Statistics information, inflation is currently at 6% year over year. The Federal Reserve has stated its goal is to lower inflation to 2%.
Since gold often behaves inversely to other types of assets, Kevin DeMeritt says stubbornly high inflation could continue to fuel an interest in it.
“Obviously, the big [influence] right now is inflation,” the Lear Capital founder says. “As people look to hedge against higher and higher interest rates, precious metals [interest] will pick up.”
The U.S. dollar’s exchange rate could also play a role in gold price activity this year.
“The dollar’s fairly high,” Kevin DeMeritt states. “Gold is priced in U.S. dollars, so changes in the exchange rate between the dollar and other currencies can have an impact on [its] price; and when the dollar weakens — [which] I believe it will, as we enter [the] recession I think is coming this year — the price of gold tends to rise even more dramatically.”
If the global conflicts, market fluctuations, and other issues that have unfolded in approximately the last year and a half continue, those elements, too, could push the precious metals demand — and price — higher.
“The economic uncertainty right now is going to be a big factor,” Kevin DeMeritt says. “Gold is used as a safe haven during recessions, market volatility, war; when investors are worried about the economy — like we’re seeing now with bank failures or the war in Ukraine — usually you get more people turning to gold, which can drive up its price. We’re starting to see that more and more.”
As a result, central banks and other entities could view gold as an increasingly appealing option in 2023, according to DeMeritt; he predicts interest in the precious metal asset will start to markedly increase over the next 24 to 36 months.
“Central banks purchased a quarter of all of the gold pulled out of the ground last year,” he explains. “If that continues into 2023, and maybe even into 2024, as [a] recession takes hold [and] we start to see more of these financial instabilities happen around the country — and probably around the world — demand from central banks could intensify, along with demand from institutional and individual investors. You might just wake up to $3,500 [or] $3,700 gold [prices] in the next 24 [to] 36 months.”
How to Benefit From Precious Metal Price Increases
To maximize the return precious metal assets might provide if any of those scenarios play out this year, investors may want to consider allocating part of their portfolio to physical gold or silver assets.
Lear Capital’s IRA portfolio comparison calculator can offer a visualization of what impact diversifying your portfolio with precious metals might have.
While essentially all age groups could potentially benefit from investing in precious metals, currently, the assets are becoming an increasingly popular choice for Americans who are about to retire, DeMeritt says, as they transition to a different investing mindset.
“Through these past 10 or 15 years, they’ve been after capital appreciation so they have more and more to retire on,” he says. “They’re moving from that to, ‘I need some of that money to create income’ [with investments like] dividend stocks; and they want to make sure that they have stability in their portfolio — so we’re starting to see people take some portion of their investments and move [it] over to have the diversification and the security [of] precious metals.”
With the considerable number of investors who may retire in the coming years — Social Security Administration estimates suggest the number of Americans who are age 65 and older will grow from roughly 58 million in 2022 to 76 million by 2035 — DeMeritt expects precious metal asset-related investing will expand significantly within that demographic.
Interestingly, though, he says another group of investors is also dabbling in precious metal asset-based investing at an increasing rate.
“We’re starting to see younger people come into the market,” Kevin DeMeritt says. “They put a lot of faith in crypto, and it’s had a lot of volatility, so they want to diversify from digital gold to real gold. It might not be their entire portfolio — [they might say], ‘I’m going to take 30% or 50% of my crypto and move that over” — which is great; they’re diversifying. Those are the two groups we’re probably seeing the most activity in at this particular point.”