The coat of arms of the state of California depicts a prospector mining for gold with the Greek motto “Eureka” – “I have found”. Today, investors in the yellow metal may find their enthusiasm muted compared to the exuberant optimism of 19th century fortune seekers.

Gold is generally considered a safe haven in times of economic turmoil, but for much of 2022, the market’s perception of the commodity has been volatile. This is largely due to the actions of the U.S. Federal Reserve and its ongoing quest to cool red-hot inflation to its 2% target.

Prices rose due to supply shortages related to the conflict in Ukraine and China’s prolonged COVID-19 quarantine. In response, the Federal Reserve raised interest rates sharply, which in turn wiped some of the luster off a non-yielding asset like gold and shifted attention to the relatively high-yielding dollar.

But since November, the sentiment around gold seems to have changed. Prices have been hovering around a six-month high this week, helped by data from the U.S. on Tuesday that showed inflation in the world’s largest economy fell more than expected to 7.1% in November.

Investors suspect that if the Fed decides it has succeeded in easing inflation, the central bank will back away from raising borrowing costs. That could subsequently derail the dollar’s recent rally and boost gold’s appeal.

On Wednesday, the Fed raised interest rates by 50 basis points, retreating from a month-long string of 75 basis point hikes. Fed chief Jerome Powell noted the slowdown in core prices, but emphasized that the rate could still peak at higher levels than expected.

This latest hawkish statement was enough to completely crush the gold price rally this week, and its spot price fell below the key $1,800 resistance level.

Still, gold prices have been steady but unspectacular lately. Spot gold prices are up more than 1% over the past year; but the S&P 500 is down more than 13%, and the supposed “digital gold” – BTC – is down more than 61% over the past year.

Central banks around the world, in particular, are keeping faith in the currency. These institutions have been accumulating reserves of the commodity this year at the fastest pace since 1967, according to the World Gold Council, as they seek to diversify their holdings and hedge against inflation risks.

Meanwhile, a seven-month period of net outflows from global gold ETFs slowed in November, thanks largely to a weaker dollar and lower yields.

Demand for gold jewelry also remains strong, with Statista forecasting that the value of the market will grow from $230 billion in 2020 to $307 billion by 2026.

China, which accounts for the lion’s share of jewelry revenue, is finally seeing a widespread easing of COVID-19 restrictions, which may help some consumers.

In India, where gold plays a key role in the festive season, which is celebrated in October, jewelry consumption in the third quarter was the highest since 2018. However, above-average inflation is expected to weigh on sales for the rest of this year.

Despite these brilliant developments, the future of gold remains uncertain. The global economy is now facing a potential tipping point, which translates into the possibility of slowly fading but stubbornly elevated inflation and sluggish growth.

In its 2023 outlook, the World Gold Council noted that this situation could serve as both a “headwind” and a “tailwind” for the metal.

“A mild recession and lower earnings have historically been positive factors for gold,” the organization asserted.

However, it warned that continued pressure on commodities as the economy slows in the first half of the year is likely to reduce gold’s appeal.

“Overall, this mixed set of influences suggests a stable but positive outlook for gold,” the World Gold Council concluded.

The “Eureka!” style exclamations may not exactly be encouraging, but it will be enough to keep gold supporters extolling its virtues in the year ahead.