Analysts' forecasts

We expect a further 25bps of tightening in 1Q23 and then the Fed to hold rates firm, even as inflation falls with the US economy entering recession. This period of rising real interest rates (with the absence of a Fed “put”) should see gold prices fall alongside risk assets and keep the US dollar relatively firm, even as the dollar index is likely to have made its cycle high in 2022. We expect this period to mark the lows for gold, before it begins to rally sustainably once the market can start to price the next easing cycle.

Top three drivers for the gold price in 2023: The stickiness of developed market inflation, central banks’ policy response to this, and the knock-on impacts on the US dollar.

We expect gold to gradually lose its lustre over the course of 2023, as the Fed tames the inflationary environment in the US, and ends the rate hike cycle in Q3 this year. Markets may also become gradually immune to the war in the Ukraine, with tensions possibly easing toward the year end, which could also see an easing in the strong central bank buying. All of these factors could see investors reassess the intrinsic value of gold, which currently looks well overvalued versus our fair-value model using drivers such as real interest rates, the US dollar and central bank balance sheet expansion.

Top three drivers for the gold price in 2023: The Fed interest rate cycle and in particular the timing of its pivot, Central buying as a diversification away from the US dollar, improving political relations leading to a higher risk tolerance.

I expect inflationary pressures to remain through 2023, as the US economy remains quite robust, and Chinese reopening brings both boosts to demand and periods of supply-chain disruption, leading to a continuation of tight monetary policy. The one major contributor to lax monetary policy last year, Japan, is now part of the tightening story as the Bank of Japan widens yield bands and may even exit ‘Yield Curve Control’ in the face of rising CPI.

I see these factors as headwinds for gold during H1 2023.

However, given high geopolitical uncertainty and the potential for volatility as the world continues to pass through a key inflection point after years of easy money and subdued price pressures, I have relied on technical targets that display the potential for a significant range.

Top three drivers for the gold price in 2023: The US dollar / real rates, Japanese monetary policy, progress in the Ukraine war.

Many of the themes that dominated in 2022 are likely to cast a shadow in 2023, including uncertainty surrounding COVID, China’s reopening and lacklustre ETF demand. However, macro factors remain central, predominantly the softening of the US dollar, falling real yields and continued robust interest from the official sector. Upside risk has been compounded by speculative interest turning positive and strong interest from China’s reopening ahead of the Lunar New Year. We expect the US dollar to weaken and bond yields to fall, but gold appears to have priced in much of this risk early.

Currently, those not participating in the rally and shying away from elevated prices include ETF holders; these traditionally represent longer-term interest in gold compared with tactical interest and consumers in India. Strength in central bank buying and China’s demand has more than offset lacklustre ETF flows, but the market has also largely priced in the positive impact of China reopening.

Tactical interest remains relatively light and has scope to grow, but the positive effects of China’s reopening and official sector buying may be an H1 2023 phenomenon. Gold is likely to extend its gains if the US dollar and real yields fall further, but if equity markets also extend their rally, there may be limited space for gold within portfolios. We believe that barring near-term upside risk, gold is likely to come under pressure as rates fall, but not as quickly as the market anticipates.

Top three drivers for the gold price in 2023: For the complex as a whole - US dollar weakening further, major Central Banks pausing rate hikes and switching to cuts in H2 2023, and recession risks and growth recovery in H2 2023. For supply and demand dynamics in particular - the uncertainty surrounding COVID-19 and China’s reopening, Russia’s invasion of Ukraine, and power shortages in South Africa.

Gold will benefit in 2023 from a weaker US dollar, the end of the Federal Reserve’s tightening cycle and slower global economic growth. Though the Fed is likely to continue to raise interest rates in the first quarter of the year, the peak of this rate hike cycle during 2023 will help weaken the dollar and result in lower yields. However, inflation will remain above target in the US and many other developed markets, limiting the scope for central banks to cut rates and potentially resulting in a stagflationary or recessionary environment. This bodes well for gold’s traditional safe-haven and portfolio diversification role, though higher prices may temper both physical demand in India and China, and purchases by Western investors and the official sector.

Top three drivers for the gold price in 2023: dollar, yields, inflation

The gold price is likely to rise in early 2023 as investors anticipate the US dollar weakening in tandem with a rates decline in support of the US economy in the recession anticipated this year. The USD Index (DXY), a good benchmark for the value of the US dollar, has formed a death cross which may likely see a weakening of the US dollar. The index is currently at 102 and strong technical support is at 95. This could mean a 9% weakening of the US dollar in 2023, with a commensurate rise of the gold price. The gold price currently seems to be most influenced by the level of the US dollar, but the VIX is low, inflation is falling and the copper price is rising, all of which could be negative for the gold price.

Top three drivers for the gold price in 2023: the strength of the US dollar, global inflation, global volatility

The recent rise in the gold price was aided by the relative weakening of the dollar. With an end to rate hikes by the Federal Reserve now in sight, the dollar could conceivably weaken further, lending further support to the gold price in 2023. A rebound in consumer gold demand is expected in China, owing to the end of COVID restrictions. Evidence of increased economic activity after an initial lull due to an opening wave of infections is supportive of local gold demand.

Top three drivers for the gold price in 2023: monetary policy, weakening dollar, end of zero-COVID in China

Our macro view is to play for a slower Fed and rising stagflation and recession risks, which will ensure both peak US dollar and peak real US yields. Inflation will fall, but not to target, and the recoveries will be uneven and will ultimately disappoint. That set-up has already ensured that gold pivoted from trading defensively for most of 2022, to trading offensively where dips are actively capitalised on, establishing a new technical bull trend after the Fed ended its 75bp hiking regime in November 2022.

Strong physical demand, renewed central bank purchases and very strong retail coin/bar demand created a robust foundation in the low $1,600s. We have an average price forecast of $1,880/oz with upside risks given a very under-owned investor community and structural bullish drivers (de-globalisation, faster de-dollarisation/re-commoditisation, unsustainable US and global debt paths, and potential pending sovereign crises), which usually emerge after an aggressive Fed hiking cycle. Gold has been down (on a hawkish Fed fighting inflation), but it is not out with an upward trajectory from here on.

Top three drivers for the gold price in 2023: Fed hikes, inflation, pace of Central Bank purchases

Amid a moderation in inflation, the Fed has room to slow the pace of rate hikes, which should favour gold. In general, 2023 is shaping up to be a gold-friendly outlook, driven by recession risks and peak US dollar and yields. Central bank buying should continue to be an important support factor, as will continued portfolio diversification and speculative money on the long side. Huge government deficits and huge increases in public and private debt should support the gold price, while any escalation in geopolitical tensions could trigger safe-haven demand for gold.

Top three drivers for the gold price in 2023: US monetary policy, US dollar, geopolitics

Price of gold is expected to gradually rise in 2023 with a support of further purchases from official sectors. As the world is not too much convinced of the stability of the US dollar, non-Western central banks may continue to purchase more gold. Also, gold can be considered a safer asset compared to crypt currencies following the chapter 11 of crypto exchange FTX. Many of the market participants have already factored in the upside of US dollar interest rates for 2023, which is also supportive. There seems to be limited reasons to push gold lower, such as a tapering from the Fed or a sharp further rise in price index which leads to the higher interest rates.

Top three drivers for the gold price in 2023: US dollar interest rate, trust in the US dollar, Chinese/Indian/Russian central banks’ purchases.

Although US interest rates are expected to stay above 5% for 2023, gold already has some antibody to higher interest rates. Focus is more on the de-dollarisation from multi-polarisation of the world. More and more central banks will consider gold value over the fiat currencies. If there were dips in the gold price, individual investors of the world both in the West and East would see them as bargain. Thus, the gold price will be supported at the lower prices and could try $2,000s if the Federal Reserve Bank slows down the speed of the interest rate hike.

Top three drivers for the gold price in 2023: de-dollarisation, Federal Reserve Bank’s monetary policy, geopolitical tension

We see 2023 being a “goldilocks” year for gold … not too hot and not too cold.

Central to understanding gold will be movements in the US dollar – and we’re mildly bearish about the dollar, given that we are more sanguine than most about expectations of a serious recession. By extension, as the macro improves, so should gold.

After two static years, we expect gold to perform positively as headwinds turn into tailwinds, with the possibility of seeing a triple-top all-time high. That’s to say we see scope for gains, but not outrageously so. Mitigating factors are likely to be the impact from price-sensitive Asian demand, persistently sticky inflation, rising real interest rates and a Fed not yet ready to pivot. Arguably, a large part of the expected price catch-up actually occurred during Q4 2022, leaving the market looking distinctly overbought just now.

The four key positive factors we see in gold’s favour are scope for increased speculative longs as the market trends higher, a shift in the tide in ETF demand from redemptions to creations as institutions re-enter the market looking for diversification, ongoing official purchases in a polarised world and ongoing strength in physical demand from the economically literate.

Top three drivers for the gold price in 2023: the dollar, interest rates, Asian demand

As a precious metal, silver trades mostly in line with gold. The market is in a deficit for the first time in many years, possibly due to good demand for industrial metals and lower LBMA stocks, which are at their lowest in seven years. Possibly photovoltaic (PV) cell demand as high hydrocarbon energy prices encourages substitution by solar energy and a switch to net long positions, a record turnaround of 180 Moz in the last three months could be responsible for this, especially as China is by far the biggest supplier of solar panels worldwide. We think that solar panel demand could double this year, consuming a possible 25% of total silver demand.

We expect the market to tighten over the next few years. This should support a moderate lift in prices over our forecast period. Investors appear to be starting to warm up to platinum, posing upside risks in an environment where there could be positive effects from rising gold prices. Substitution away from palladium in favour of platinum and growth in heavy-duty diesel loadings should continue to support demand. On the supply side, we expect the recovery in mine production to be constrained, especially out of South Africa, which accounts for over 70% of global mine supply. Recycling is also likely to fall in the coming years as a function of lower loadings in the past 10-15 years, with risks to the downside given refining bottlenecks and the recent trend of vehicles being used for longer before they are scrapped. While there are risks to both demand and supply, tighter markets ahead suggests that platinum prices are likely to be relatively well supported and sensitive to upside catalysts. A weaker global growth backdrop implies downside potential for auto demand which would temper platinum’s upside, but continued challenges in the South African PGM sector means supply shocks could easily push prices higher.

We think the market will see rising surpluses ahead. Some pent-up demand from the auto sector in H1 could provide support for the time being, as automakers fulfil existing order backlogs, implying some lingering pent-up palladium demand. However, we expect market conditions to ease further out, forecasting growing surpluses that would eventually reach more than 1moz in 2025, a function of a weak auto sector outlook alongside the ongoing transition towards EVs. Rising battery electric vehicle (BEV) shares in particular weigh on palladium offtake from the auto sector, which accounts for over 80% of total metal consumption. At the same time, we expect mine supply growth to be relatively resilient, albeit with large uncertainties out of Russia. We see more growth in scrap supply in the years ahead driven by the increase in palladium loadings over the past 10-15 years, which should lift recovery rates. Deteriorating supply and demand fundamentals exert downward pressure on prices in the medium to long term and weigh on investor sentiment.