Interest rate hikes and monetary tightening by central banks have helped push gold prices down in recent months, but there are expectations of some recovery for the rare resource in 2023.
During the better part of 2022, gold was losing value with a drop of around 4 percent.
The steep decline began thanks largely due to the aggressive attack on inflation by the Federal Reserve, as well as a stronger U.S. dollar. In fact, the U.S. dollar rose 13 percent from January to August 2022.
ABN-AMRO Group Economics says investors have partly liquidated their ETF positions as a result of the stronger dollar. Rising U.S. real Treasury yields also factored into the downward slide of gold prices.
Gold began trading in 2022 at $1,811.40 an ounce, according to the World Gold Council. The rare metal kept climbing in value until Russia attacked Ukraine on February 24th, when the price took a slight drop from $1,936.30 to $1,884.80. However, the price saw a quick resurgence and once again began to rise.
During the first week of March, gold was trading above $2,050 an ounce, not far from the record set in August 2020 of $2075. But the precious metal lost its upward momentum when the Fed began its monetary clamping and fell in value below $2000.
Analysts with Capital Economics suggest the U.S dollar will continue to gain strength this year, as the American economy compares more favorably to similar economies in Asia and Europe. Also, major central banks including the U.S. Federal Reserve and the European Central Bank, are expected to further increase interest rates until at least the first quarter of 2023 to keep a lid on inflation.
As a result of this outlook, analysts say the gold price forecast for the rest of 2022 still looks mostly negative. However, change is anticipated for 2023, with prices anticipated to reverse direction.
Gold Price 2023
Analysts are anticipating a weaker U.S. dollar in 2023. Plus, ABN-AMRO Group Economics is forecasting a reduction in interest rates starting in the second half of the year, along with lower U.S. real yields, resulting in a rebound in gold prices.
However, the higher gold value isn’t anticipated to match the record prices set in 2021 or surpass them. It’s unlikely other central banks will be reducing their interest rates as they continue to battle high inflation despite more potential economic deterioration.
ABN-AMRO Group Economics predicts a 2023 year-end price of USD 1.900 per ounce, which is reduced from 2.000. But again, that is still an increase from 2022 gold prices.
Yet, other factors may play into the value of gold in 2023. Demand for jewelry in India, for example, could weaken due to an increased duty of five percent to 12.5 percent. Depreciation of rupees would also weigh on prices. However, higher oil prices will likely result in continuing demand from the Middle East, and growth in demand is expected from China.
ETF holdings, which are projected to continue their slide but remain near record levels, will also influence the price of gold. On the positive side, gold continues to be added to central bank reserves, most notably in Turkey and Egypt. Such demand is expected to help offset the downward pressure on gold prices from various factors such as dollar appreciation and subdued jewelry purchasing.