As we close out 2022, the dollar price of gold is just above $1,800 per ounce. While the gold price has fluctuated a bit, it has actually mostly stayed within a narrow range.

Starting around the beginning of the 21st century, gold went on a bull market run for about 10 years. It has largely been uneventful since that time. There was a short-term bear market in 2015 and 2016. If you had invested in gold around 2011 near its high, you wouldn’t have seen much in the way of gains or losses in terms of U.S. dollars since that time, although the dollar has depreciated quite a bit in that time.

Precious metals, particularly gold and silver, is the only major asset class that isn’t in a bubble. While stocks, real estate, cryptos, and other assets have roared higher for the last several years, the metals haven’t done much.

Bonds are a different story. They are likely in an unsustainable long-term bubble, but they could still do well in 2023 if there is a deep recession and interest rates fall.

The yield curve is highly inverted as we close out the year, and a deep recession looks likely in 2023. This will have a great impact on all asset prices, including gold. It will also depend on the actions taken by central banks, and the Federal Reserve in particular.

We can fully expect that real estate and stocks will go down in 2023. The declines have already begun, and the decline in the Nasdaq has really begun. To be sure, in early 2020 I thought it was crazy that the Nasdaq was going to hit 10,000. I thought it was a bubble then. With the massive sell-off in 2022, the Nasdaq is now slightly above the 10,000 mark.

So the question may not be whether gold will go up in price in 2023. It is more a question of whether it will do better than most other investments, and I think the answer is yes.

In the 2008 financial crisis, gold went down. But it didn’t get hit as hard as stocks and housing, and it went back up rather quickly. The same thing could happen in 2023, especially if and when the Fed reverses course and stops its monetary tightening.

Dollar Strength and the Fed

One of the other factors to consider when looking at the gold price is the relative strength of the U.S. dollar. In 2022, the euro actually fell below the dollar, although it has gained back some of its losses at the end of the year.

But the overall strong dollar (relative to the other major currencies) has been a weakness for gold, at least for Americans. If you look at the gold price in euros, it is much stronger these days and not far off its all-time highs.

Investors are taking the Fed seriously about tightening its monetary policy to get price inflation under control. Of course, the high price inflation is a result of the Fed’s previous policies, but the Fed seems to be the only major central bank that is serious about getting it under control.

Maybe that will all go out the window with a bad recession in 2023. It may go out the window if major financial institutions get in trouble. But for right now, the Fed continues to tighten in the face of an inverted yield curve.

The Fed is not going to reverse course just to save the stock market, at least as long as price inflation is above 3%. But if we have a deep recession and consumer demand plummets, it is possible that price inflation could go down significantly in the coming year.

If the Fed reacts and starts expanding its balance sheet again, then I believe gold will enter a new bull market. If the Fed just stops tightening but doesn’t move to an easy money policy either, then expect almost everything to go down.

But again, gold will go down less.

So even if gold isn’t going higher in 2023, what are your alternatives? I don’t recommend a large position in stocks or real estate right now. I certainly don’t recommend cryptos. Maybe some bonds are a good idea for diversification, but they have risks too.

That leaves gold and cash. I think gold is a great form of diversification right now. It may not shine brightly in 2023, but it may be the least bad option at this point for a good chunk of your portfolio.

If and when the Fed starts loosening again, then all bets are off. I expect gold to go higher, and I expect gold mining stocks will have the potential to go up in multiples of where they are now.