A Proven Safe Haven

During the most devastating year for investors in 14 years, gold proved to be a reliable safe haven in 2022. As stock and bond markets around the globe suffered double digit declines, the precious metal maintained its value, ending the year essentially flat, with a drop of less than one percent.

Stocks were crushed amid worries over rising inflation, rising interest rates, supply chain snags, war between Russia and Ukraine, and signs of a possible recession. The Nasdaq Composite Index plunged 33 percent, the Standard and Poor’s 500 Index dropped 19 percent, and the Dow Jones Industrial Average dropped 9 percent. Virtually every industry sector, other than energy, suffered declines.

Bonds are supposed to offset losses in the stock market, but in 2022 they provided no refuge for investors, suffering their worst performance in history. Bloomberg bond indices tracked the decline: the Bloomberg U.S. Aggregate Bond Index sank 13 percent, the U.S. Treasury Index fell 12 percent, and the Municipal Bond Index dropped 9 percent.

While gold was a safe haven in 2022, investors might have expected the confluence of worries battering stocks and bonds would have lifted the price of the precious metal. But the rapid rise in interest rates—the fastest in four decades—was a negative, particularly because it drove big gains in the U.S. dollar, raising the cost of gold in overseas markets.

Still, those investors holding gold were able to safeguard their assets through the most tumultuous year since the financial crisis of 2008.