Protect your wealth?

 

2022 was an awful year for investors in most assets, including property. In the US new mortgage applications in Q3 of 2022 were down 47% year-on-year ; in the UK house prices fell by 2.3% month-on-month last November, the biggest drop since 2008. In Sweden home values have drop by 15% from their peak early in 2022 ; German house prices were forecast by Deutsche Bank at the start of December to drop by up to 25%

So where could you have turned to, to protect your wealth?

Perhaps look to central banks, which accumulated more gold than at any time in the past 55 years. It’s almost as if central banks were laying in stores for an expected coming storm. Some analysts see the bigger central bank gold-buying as delivering a pointed message – they don’t want to be too exposed to the US Dollar. Russia’s central bank had more than $150 billion of US Treasuries in 2012; today it’s around $2 billion, while its gold holdings have risen to more than 1,350 tonnes.

And while most other asset classes nose-dived last year, gold held onto, and even managed to increase, gains achieved in earlier years. In US Dollar terms the gold price in early January 2022 was $1,795.19 an ounce; on 1 January this year it was $1,823.70, a modest gain of almost 1.6%. In Pound Sterling terms the gain over the same period was even more marked, at 14.5%. This was a remarkable achievement, given that the US Federal Reserve pushed interest rates to their highest level for 15 years, to a range of 4.25%-4.5%, strengthening the Dollar. A stronger Dollar usually tends to depress gold prices; so the question is, what might the gold price have been if the Dollar had not been so strong? That counter-factual is obviously impossible to answer.

When might the Fed end its rate hikes? Not this year if it’s true to its word from last December; it will continue to raise rates to around 5%-5.25%. The earliest we can currently expect rates to fall is in 2024.