LBMA Precious Metals Market Report: Q1 2023

The three likely drivers of the gold price through 2023, cited by analysts in the LBMA Annual Forecast Survey, are the US dollar and the Fed Funds Rate (43% of respondents), inflation (14%), and geopolitical factors (11%), and these predictions proved broadly correct through the majority of the first quarter.

Largely propelled by fears that developed world central banks were ‘behind the curve’ when it came to controlling inflation despite their programmes of rate rises (including two by the Fed in Q1), the gold price rose steadily from 3 January (a.m.) at $1835.05, gaining 6.53% to top out at $1954.90 on 2 February (a.m.), additionally benefitting from the continuation of central bank gold purchases which had been an important positive factor in 2022. Over the same period, the US dollar (charted by Capital Economics against a basket of currencies) fell by 1.77%.

Market sentiment changed at the beginning of February as Fed Chair Jerome Powell made it clear at the 31 Jan – 1 Feb Federal Open Market Committee meeting that the US interest rate trajectory was still upwards, and that there was no prospect of a pivot anytime soon. At the same time, worries about a possible US (and associated global) economic recession had been tempered by much higher than expected US job vacancy statistics.

The upshot of this mood change was a rapidly strengthening dollar: +3.89% to 8 March, and a concomitant weakness in the gold price: -7.25% to 8 March from ($1954.90 to $1813.25).

8 March proved to be Q1’s second major turning point, not, however, prompted by macroeconomic factors but by the collapse of Silicon Valley Bank, followed by Signature Bank, the bail-out of First Republic Bank, and in Europe the distressed sale of Credit Suisse to UBS.

These events not unreasonably prompted fears of contagion across the banking system, sending the US dollar into a downward tailspin (-2.83% at the quarter’s end and still counting) and underlining gold’s role as a safe haven in times of financial stress (or, to alter the motto on the reverse of a US dollar bill, ‘In Gold We Trust’).

In short, from 8 March (a.m.) through to 24 March (p.m.), the gold price rose $180.45 or 9.95%, and from 10-15 March recorded trading volumes over one third above the 2022 average, and falling back slightly, on profit taking, to the month’s end to close at $1979.70, a total gain of 7.88% for the quarter. At the same time, on 24 March, gold touched £1634.84, its highest ever price in sterling.