Gold has been a valuable commodity for centuries, and it remains a popular investment for many traders and investors today. Gold price prediction is a crucial concern for investors who seek to diversify their portfolios and hedge against inflation and economic uncertainty. Gold can be bought as bullion in its physical form, or traded through financial derivatives. Some investors choose exposure to gold-mining stocks, or gold-linked exchange-traded funds (ETFs). After hitting an all-time high of above $2,000 an ounce in March 2022, gold prices have steadily declined, mainly due to interest rate hikes and monetary policy tightening by central banks around the world. However, towards the end of the year, gold prices began to recover, with a 17% rise since November 2022, supported by the reopening of China, a key gold buyer, and a weaker US dollar. As we enter 2023, investors are keeping a close eye on the interplay between inflation and central-bank intervention, which will be key in determining the outlook for gold’s performance. The gold price rose over 5% year-to-date, supported by the reopening of China, a key gold buyer, and the weaker US dollar. What does this mean for gold price predictions in 2023? In this blog, we will analyze the factors that are likely to influence the gold price in 2023, as well as some expert predictions.
According to pricing experts, industry leaders, financial analysts, and big banks, numerous factors could push gold prices higher in 2023. These include:
During times of recession, gold has always been a popular safe-haven investment due to its stable value. Analysts have noted that the current dynamics in the bond markets, especially the inverted yield curve, often precede a recession. However, it is also possible that investors expect nominal interest rates to fall as inflation eases. Despite the positive impact of a recession on gold prices, the recent increase in interest rates used to combat inflation has limited the precious metal’s upside.
Juerg Kiener, the Chief Investment Officer at Swiss Asia Capital, believes that the price of gold could reach between $2,500 and $4,000 per ounce in 2023 due to a mild recession that many countries are likely to experience. As a result, central banks will likely slow their rate hikes, making gold more attractive to investors and central banks. This increased demand will push gold prices higher, creating an ideal investment opportunity for investors looking to diversify their portfolios during uncertain economic times.
The relationship between gold prices and interest rates is complex and can significantly impact the price of the precious metal over the long term. In early 2020, as the COVID pandemic led to Fed rate cuts, gold prices surged. However, as the US rates bottomed out, gold prices levelled off and moved sideways as the Fed indicated rates would remain low for the foreseeable future. In 2022, high inflation led the Fed to indicate that interest rates would rise until inflation was brought under control. Interestingly, despite the sustained high inflation during this period, gold prices did not increase but started to fall as the Fed raised interest rates and offered further guidance on tightening, making interest-bearing securities more attractive to investors. As interest rates rise, the opportunity cost of holding gold increases, making gold less attractive compared to interest-bearing securities, leading to a decrease in the demand for the precious metal.
Cryptocurrency Demand Decline
There is a perceived relationship between cryptocurrency demand and the price of gold, as both are often seen as alternative investments. When the demand for cryptocurrencies rises, some investors may shift their investments from traditional assets such as gold to these digital assets, which can lead to a decline in demand for gold and a subsequent decrease in its price. Conversely, if demand for cryptocurrencies decreases, investors may shift their investments back to traditional assets, including gold, which can lead to an increase in demand and a subsequent increase in gold prices.
In the context of the prediction for gold prices in the next few years, the decline in cryptocurrency demand may be seen as a positive factor for gold prices. The Fitch Solutions’ forecast for gold prices in the coming years cited geopolitical tensions as a factor that could support gold prices. With the decline in cryptocurrency demand, investors may become more risk-averse and turn to safer investments such as gold as a hedge against uncertainty and volatility. This increased demand could counterbalance the expected decline in gold prices due to the resolution of geopolitical tensions and the recovering global economy, which were also cited by Fitch Solutions. Overall, the relationship between cryptocurrency demand and gold prices is complex and multifaceted, but the decline in cryptocurrency demand could potentially support gold prices in the future.
Continued Central Bank Gold Buying
Over the past year, central bank gold purchases have played a vital role in driving the price of gold. According to industry expert Hug, central banks have a significant impact on the gold market. When foreign exchange reserves are large and the economy is doing well, central banks want to reduce their holdings of gold because it generates no return compared to other assets, such as bonds.
However, this is precisely when other investors aren’t that interested in gold, causing its price to fall. Despite the fact that selling gold is precisely what a central bank is supposed to do, they are always on the wrong side of the trade. Central banks have tried to manage their gold sales in a cartel-like fashion, limiting sales to avoid disrupting the market too much.
This is why they created the Washington Agreement, which states that banks won’t sell more than 400 metric tons of gold in a year, although it’s not a binding agreement. Nonetheless, central bank gold purchases are expected to continue, and they have the potential to significantly impact the price of gold in the coming months.
Inflation or Stagflation
Gold is often seen as a safe haven asset, especially during times of economic uncertainty. However, a recent study by economists Claude B. Erb and Campbell Harvey has shown that gold does not necessarily correlate well with inflation. In fact, in 2022, gold prices declined while inflation rose to around 7%. That being said, inflation can still have an impact on gold prices. When inflation is high, the purchasing power of a currency decreases, and investors may turn to gold as a hedge against inflation. For 2023, the interplay between inflation and central bank intervention will be a crucial factor in determining gold’s performance.
The World Gold Council suggests that geopolitical tensions and a mild recession could also provide support to gold investment, while growing consumer demand for gold in Europe, especially in Germanic markets, could remain robust as retail investors look to protect their wealth. Overall, while the relationship between gold and inflation may not be straightforward, other economic and geopolitical factors are likely to influence the performance of gold in the coming year.
US Dollar Weakening
In 2022, despite high inflation, gold did not perform as expected due to aggressive central bank moves. Investors chose to invest in the US dollar instead of gold due to the belief that the Fed would bring inflation levels down to their target of 2%. The negative correlation between gold and the US dollar meant that gold prices fell as the US dollar rallied. However, in 2023, the US dollar’s strength could come off if the peak of hawkishness from the Fed’s Treasury yields comes off. A daily close above 1765 could send the price of gold back to 1789.
Gold prices are also influenced by the value of the US dollar, with a weaker US dollar typically resulting in a rise in gold prices due to it becoming cheaper for investors holding other currencies to purchase gold. In addition to this, the price of gold has been influenced by a weaker US dollar index as the Fed has slowed the interest rate hike to 25 basis points at the February 2023 meeting, signaling slowing monetary tightening.
Exchange rates can also impact the price of gold. In the past seven days, the insistence for gold has continued to rise, with gold and silver both rising against the US dollar. With precious metals on the rise, ‘gold bugs’ believe that the yellow metal is set to shine in 2023.
The global gold market is subject to various factors, one of which is geopolitical tensions. Such issues can impact the price of gold, and if investors are uncertain about the stability of certain countries or regions, they may turn to gold as a safe haven investment, causing the price to rise.
However, Fitch Solutions’ gold price forecast in December 2022 predicted that the bullion would fall beyond 2023 as the Russia-Ukraine war would resolve and the global economy was expected to bounce back in the latter half of the decade. The firm predicted that geopolitical tensions, which are among the influences that can be good for gold in 2023, would reduce holdings of gold by the most risk-averse investors.
Moreover, Juerg Kiener, Chief Investment Officer at Swiss Asia Capital, believed that the price of gold per ounce could reach between $2,500 and $4,000 at some point in 2023 as many countries are likely to face a mild recession. He explained that this price change could occur as central banks slow their rate hikes, making gold instantly more attractive to investors and central banks.
Supply and Demand:
The gold price is subject to the dynamics of supply and demand, with various factors influencing both. Changes in mining output, central bank purchases and sales, and fluctuations in jewellery demand can all impact the price of gold. When the supply of gold increases, the price may fall due to the additional availability of the metal. On the other hand, higher demand, such as for gold jewellery in a specific country, can drive up the price of gold.
In 2023, the reopening of China’s economy, one of the largest buyers of gold, is expected to contribute to an improved outlook for the precious metal’s demand. In particular, the People’s Bank of China has already increased its gold purchases by 32 tonnes, the first increase in its gold reserves since September 2019. This move suggests a growing interest in gold as a safe haven asset by central banks in China, which may further bolster demand in the near future.
In conclusion, while some positive factors may support gold prices in 2023, such as a mild recession and growing consumer demand for gold in Europe, there are also factors that could drive prices down, such as the resolution of the Russia-Ukraine war and the global economic recovery. Investors should keep an eye on the interplay between inflation and central bank intervention, the value of the US dollar, and geopolitical tensions when considering gold price predictions for 2023.