Ross Norman

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

If you like gold then, by extension, it follows that you should love silver, given its tendency to outperform in commodity bull markets. With total supply relatively static at around 1 billion ounces, but with demand rising 16% year-on-year to an all-time high, coupled with declining inventory stocks, leaves silver looking vulnerable to a move higher. Arguably though, some of those expected gains have already been seen in Q4 2022. 2022 saw a record supply deficit primarily on strong demand from investment, jewellery and the silverware markets, so as the global economy recovers, we see further increases in demand from these key sectors and the market remaining deeply in supply deficit. Despite some thrifting in the silver loadings in photovoltaic (PV) cells, the effect will likely be more than offset by the overall growth of the sector as political pressure for energy independence grows, especially across Europe. Rather like gold, silver has seen excellent offtake for physical demand from retail investors; however, institutional investors were unconvinced in 2022 and we saw record redemptions from the key ETF sector. So if you want to know gold, then watch silver …. and if you want to know silver, then watch silver ETF flows.

We foresee good gains for the broad commodity complex in 2023, but for platinum in particular. We think expectations of a recession are overplayed and the surprise to the economy will be to the upside. As optimists for the macro, it follows that platinum as an industrial metal should also fare well. A mitigating factor may be a large rise in primary supply as South African smelters come back on-stream and given the large pipeline stock build of 2022. However, never underestimate Eskom’s capacity to disappoint as the frequency and severity of power utility outages and load shedding continues. On the positive side, in the auto sector, the semi-conductor crisis is easing and global manufacturing of passenger vehicles is forecast to rise by about 5% this year to just below pre-pandemic levels, with 71 million car sales. More importantly, we expect a rise in platinum usage for gasoline vehicles, formerly the preserve of palladium. We see the positive outlook for platinum coming to some extent on improving macro conditions and partly at the expense of sister metal palladium as automakers shift away from a metal which bears a significant Russian supply risk. In short, we see platinum moving to a supply deficit of between 250,000 and 300,000 ozs in 2023, helping the best-performing precious metal in 2022 (up 12%) extend its run.

Marked as it was by extreme volatility in 2022 (with a $3,434/$1,657 range), in 2023, palladium prices look set for a recovery off recent lows, aided by supply side issues as the market slips back into a supply deficit again this year. The positive outlook for auto demand, which accounts for 80% of offtake, is forecasted to rise by 5%, as car production is recovering well and is at near pre-pandemic levels at last, with the semi-conductor crisis especially now much eased. Indeed, the reopening of China should have a significant impact on palladium despite some substitution from sister-metal platinum. With primary supply expected to rise modestly as South African production returns to normal, and as Nornickel concludes scheduled maintenance work, we see the market remaining roughly in balance as demand also rises commensurately.