After a tough year, the gold price ends 2022 with a rise of around $1,800. The precious metal is looking to end the year with an overall decline of less than 2%. That would make it one of the best-performing assets quickly behind the US dollar. As the market’s bullish sentiment increases, some analysts are warning investors to be patient in 2023. Here are the details…
Fed takes firm stance on inflation
The gold market is expected to continue to outperform multiple asset classes in the new year. However, banks and analysts do not expect to see a significant increase until the second half of the year. For now, gold prices are expected to remain in the neutral zone, at $1,800. At the last monetary policy meeting of the year, the FED had predicted that the Fed Funds rate would rise above 5% in 2023. The Central Bank’s updated forecast covered a year that saw the most aggressive tightening cycle since 1981. Inflation fell from summer highs.
But the Fed’s Jerome Powell stated that the central bank’s work is not done. The Federal Reserve continues to take a firm stance on inflation. Powell said:
Even with today’s movement, we are not in a sufficiently restrictive stance… We will get to this point and then the question will be, how long will we stay there? And there is a strong opinion in the committee that we should stay there until we are really sure that inflation is falling in a sustainable way. We think this will take some time.
Gold price will rise to this level
Economists argued that the central bank is nearing the end of its tightening cycle. He also states that this may be enough for gold. Bank of America wants the Fed to end its tightening cycle in March. However, it sees its first rate cut by the end of 2023. In this environment, Bank of America’s commodity strategist Michael Widmer said gold prices are way up to $2,000 an ounce.
Commerzbank commodity analysts also expect the Federal Reserve to cut interest rates by the end of the year. However, they added that in the short term, gold prices could struggle as investors tune in to a new terminal rate hike of over 5%. Analysts at the German bank also said:
Following what was expected to be the last rate hike in March, a period of unchanged interest rates is likely to follow before the Fed unfailingly again lowers the key rate to the end of 2023, given a weak economy and low inflation. The Fed, on the other hand, is not claiming that now. As soon as the Fed adopts this view, the gold price should rise again. That should be the case in the second half of next year, because by then inflation will have fallen suitably and the US economy will be calm since the beginning of the year. The gold price should also be supported by the weakening of the US dollar, which our currency strategists expect.
Gold price may show a positive long-term performance
Commerzbank predicted that gold prices would rise to $1,850 by the end of 2023. The Federal Reserve is slowing the pace of interest rate hikes. However, it will continue to tighten its monetary policy in the new year. However, it will limit investors’ interest in gold. Many analysts said that the precious metal is forming a new baseline where prices are expected to recover. Many analysts have claimed that gold prices will hold a foothold above $1,600 per ounce.
Douglas Groh, senior portfolio manager at Sprott Asset Management, said changing economic trends could mean the world is entering a cycle of higher inflation. He added that the Federal Reserve is not expected to bring inflation back to its 2% target and that this high inflation environment will be a long-term positive for gold as investors try to defend their purchasing power. He further added:
The geopolitical environment has changed and we will see the globalization trend reverse in the next few years. Bringing production back to the west and the global power transition won’t be resolved in 2023. Addressing these issues will take a lot of money, which will keep inflation high for the next few years.
How much can gold prices fall in 2023?
TD Securities is in the middle of the companies that showed the most decline in gold in 2023. The Canadian bank sees the expensive metal drop to $1,575 in the first quarter of next year. However, the bank thinks that gold prices will rise to $1,900 by the end of 2024. Analytes said for the gold price:
The very strong possibility that rates will fall significantly before the two percent inflation goal is met should encourage many investors to buy gold to compensate for the significant lack of real returns on many of the Treasury curves.
Along with Bank of America, Saxo Bank is one of the most optimistic about gold before the New Year. Ole Hansen, the head of commodity strategy at the Bank of Denmark, said he does not expect the FED to control inflation.
The risk of a calm and the FOMC’s entry into economic weakness – potentially failing to contain inflation – continues to strengthen upside risk for investment metals in 2023.
Precious metal faces record demand
The Federal Reserve sees core inflation rising by 3.5% in 2023, which is relatively consistent with consensus assumptions changing in the middle of 3% to 4%. The University of Michigan reported that, in its preliminary assumption, it sees consumer inflation rise 4.6% next year. Also, although investment demand was sluggish until 2022, the premium metal received historic demand from central banks. Juan Carlos Artigas, global research leader at the World Gold Council, said that while purchases have soared this year, it is the continuation of a trend that has been building for more than a decade.