A Review of The World Gold Council's H1 Mid-Year Outlook Report

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The Mid-Year Outlook report from the World Gold Council suggests the consensus view of a mild contraction in US output and slowing growth in developed countries this year, coupled with a weaker dollar, should remain supportive of the gold price in H2 2023. It notes that, historically, when US rate rises have been put on hold, gold has performed well in the next six to twelve months, with average monthly returns of 0.7% (See chart 2). 

Conversely, gold may face challenges if interest rates rise further, or are held higher for longer than expected. Similarly, should the US economy avoid a prolonged slowdown and return to trend growth, this would then favour risk assets (e.g. equities) over gold, perpetuated by potentially a stronger dollar.  

According to this report, gold is also supported when economic conditions deteriorate, and notes that lead indicators, such as Purchasing Managers Indexes for the services and manufacturing sectors have been weakening for developed markets in recent months. What is more, it cites that a combination of stock market volatility and systemic risks, such as geo-political conflict and financial crisis, should see gold hedging strategies remain firmly in place.  

To summarise, the piece reverts to the utility of an allocation to gold in a well-diversified portfolio and how this could provide a more optimal ‘risk-adjusted’ return for investors. Furthermore, in its hypothetical analysis, the gold allocation provides for a smaller drawdown in portfolio value, thus protecting invested capital. (See Table 1).  

References: 

• Gold Price Spikes Following Silicon Valley Bank Collapse (royalmint.com)
• Gold Mid-year Outlook 2023: Between a soft and a hard place | World Gold Council (Referred to on 9^th August 2023)
• Gold for Pensions | The Royal Mint

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