As an investor, there was nowhere to hide in 2022. Except in gold. 
The carnage in the investing world was evident everywhere in 2022, with double digit losses in top-rated government and corporate bonds, to the major stock indexes, and to cryptocurrency and tech stock darlings.
Gold: One of the Best Performing Asset Classes in 2022
As inflation ravaged the value of cash, precious metals investors held their value in gold throughout 2022 – proving once again that gold is a store of value and an asset where you can not only grow your wealth but importantly preserve it.
Gold is up 11% from its November low and is nearly unchanged year-to-date. Compare that to the year-to-date asset performance below:
US Corporate Bond Index down 16%
US Government Bond Index down 13%
S&P 500 down 20%. NASDAQ down 34%
Bitcoin down 65%
Apple (AAPL) down 28%
Google (Alphabet Inc. GOOG) down 40%
Tesla down 65%
GameStop down 51%
Economic Growth
The U.S. consumer helped keep the economy afloat in 2022, despite the hefty challenges of decades-high inflation and soaring interest rates. The economy is expected to grow at a 1.9% year-over year GDP rate in 2022, according to the Conference Board.
In 2023? They expect that growth rate to slow to zero percent, with others calling for an outright recession in 2023 with negative economic growth ahead.
Inflation
Runaway inflation in 2022, along with rising interest rates tanked both the stock and bond markets. Going to the grocery store alone ate a big hole in your wallet this year. Egg prices climbed to nearly $10 per dozen in some cities, while overall grocery prices rose 12% in November from a year earlier. That marked the highest food price gains since August 1979 when food prices rose 13.5%.
If you felt like dining out, the situation was no better. Sit down restaurant meals climbed about 9% and restaurants now charge for items like bread that were formerly complimentary. For
For those who like to travel, getting on an airplane was substantially more expensive in 2022 as airline fares increased 36% in November, the biggest jump since 1991.
Interest Rates
After sitting on its hands throughout 2021, while inflation steadily increased, the Federal Reserve finally took action in 2022 to combat inflation.
While many Americans believe that Congress or even the President can control inflation, it is actually the Federal Reserve’s job to do just that. Congress, in fact, explicitly stated that the Fed’s goals are to sustain “maximum employment, stable prices, and moderate long-term interest rates.” The Fed has monetary policy levers, such as raising or lowering interest rates to perform its duties.
Well, the Fed fell down on the job in 2021 and 2022 when it allowed the Consumer Price Index to climb to a high of 9.1% in June – well above the Fed’s stated 2% inflation goal.
In order to try to tame the red-hot inflation that punished Americans at every turn in 2022, the Fed increased interest rates seven times in 2022 raising its benchmark rate to 4.25-4.50%, a 15-year high. The interest rate hikes are designed to slow the economy and thus bring inflation down.
The problem with letting inflation get out of control and so high is that the Fed will now likely cause a recession in 2023 with its aggressive interest rate hikes.
What 2022 Taught Investors about Preserving Wealth
In a year when nearly every single asset class was in the red, gold was a shining star. Gold maintained its value in 2022 offering investors a way to preserve, not lose their wealth. Looking into 2023, an increased allocation to physical gold appears to be a strategic investment move. There are a variety of forecasts that show gold increasing in value to $2,000 and even $3,000 in the year ahead. With looming economic recession on the horizon, gold offers investors a safe-haven in the current economic storm. Do you own enough?
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The post The State of the Economy and Gold: A Look Back at 2022 appeared first on Blanchard and Company.
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