Jonathan Butler

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

Silver will also benefit from the favourable macro environment of a weaker dollar, falling yields and still-high inflation. Although regional economic slowdowns do create headwinds for industrial demand, some of silver’s key growth areas in the solar photovoltaic (PV) space and in vehicle electrification are already baked in from prior investment decisions and long-term market trends. Limited mine supply growth and rising demand will push the market into a fundamental supply-demand deficit this year, which combined with depleted stocks on exchanges, should keep market conditions tight and provide underlying price support. However, higher prices do bring the risk of lower retail investment demand, plus the risk of liquidations of some of the large volumes of physical silver bought in India the last two years.

Although platinum supplies are set to increase in 2023 as the stockpile of unprocessed material built up during operational disruptions in South Africa last year get released, the risks of further disruptions to supplies from the region remains high however, due to a worsening electricity supply situation. This could continue to provide support to platinum prices this year. The easing of automotive supply chain issues, pent-up demand in China as the economy opens up from its COVID restrictions, as well as substitution of palladium with platinum, provide a generally positive backdrop on the demand side. Rising heavy-duty vehicle demand and upcoming Euro 7 legislation should also help, but ultimately offtake will be determined by consumer pull, which will remain constrained by high interest rates and elevated inflation. Platinum will continue to attract new buying from, and possibly investment interest on the back of, the hydrogen sector.

Palladium supplies will continue to be at risk from both South African operational disruption and lower output from Russia as sanctions impact on both underlying mine output and where finished metal can be sold. A likely continuation of the drift lower in palladium prices should constrain recycled supplies of metal and keep the physical market fairly tight. Demand in China is likely to bounce back as the economy reopens; however, the high risk of recession and stagflation elsewhere is less positive for palladium as a mainly industrial commodity. Substitution of palladium (with platinum) in both light and heavy-duty vehicles threatens palladium’s relative market share in the automotive space, but more challenging still is the threat of absolute demand destruction from the rising market share of battery electric vehicles and the lack of any sizeable new demand area for palladium.