LBMA Precious Metals Market Report: Q4 2022 - A Quarter of Two Halves

For gold, the first part of Q4 2022 continued to reflect the ambivalence felt by the market, and by investors – who were already spooked by the international fall-out from the UK ‘mini budget’ in late September, about where the price was heading in the face of high inflation, a possible global recession, the response of central banks, and continuing geopolitical tension.

Despite a 15-day positive run in late July/early August, and more briefly in the seven trading days from 28 September, the gold price had been largely falling since the 2022 high of $2039.05 achieved on 8 March (p.m.) through to November 3, $1620.65 (a.m.), a drop of 20.52% - a significant move given the price’s low-high trading range throughout the entirety of 2021 was 16%.

The beginning of November, however, marked a turning point. On 2 November, the US Federal Reserve announced a 75bps rate hike in the primary credit rate to 4.0%. More importantly, given the market had already anticipated this rise, Fed Chair Jerome Powell also dispelled any thoughts entertained by some in the bond markets, that a ‘pivot’ or rate reversal was on the horizon. A few weeks later, at the mid-December FOMC meeting, Powell formally stated the Fed had no intention of altering its 2% inflation target, at the same time creating certainty and underlining his view that inflation, and thus high interest rates, will be around for the long-term despite the risk of a US recession.

Coincidentally, 2 and 3 November also witnessed a shock for some of the loudest critics of gold – the digital currency community – with the news of the collapse of Sam Bankman-Fried’s FTX crypto exchange, which prompted a further hit to the bitcoin price which had anyway been declining since the beginning of Q2, and which finished 2022 down 59.6%.

In short, sentiment in the gold market turned positive, and with barely a look back the gold price rose 11.8% to end-December at $1812.35, a $3.30 gain on the year. As the FT revealed in an article of 3 January 2023, this positive momentum was supported by ‘unprecedented’ buying by central banks (almost 400mt in Q3 alone). As an analyst quoted by the paper said, “The message these central banks are sending by putting a larger share of their reserves in gold is that they don’t want to be reliant on the US dollar as their main reserve asset”.