Preface
With the gold price rising, investors are keen to know how gold prices may look in 2023. While there is no foolproof way to predict the future, analyzing current trends and market factors can provide insight into the potential direction of gold prices. In this article, we will dive deeply into the factors affecting the 2023 gold price outlook and how investors can utilize this information to make an informed investment decision.
What Determines Gold Price?
Supply and demand
Unlike most commodities, supply and demand have a lesser impact on gold price because the supply and demand changes are relatively stable.
With the difficulty of mining increasing, gold production increases by only about 1% of the total output each year. The demand for gold is mainly in two areas: physical and investment. The former’s demand is limited by the relatively high price of gold in the industrial sector, so the correlation between the price trend of gold and the macroeconomic cycle is not apparent.
The investment demand mainly comprises official and personal investments, such as central bank reserves, gold bars/coins, gold futures/ETFs, etc. Central bank reserves play an important role because the sale or purchase of gold by central banks tends to have a psychological impact on the market, thus triggering a change in market expectations, which in turn affects the gold supply and demand situation.
U.S. dollar and Fed’s monetary policy
The U.S. dollar is the world’s reserve currency and is used in transactions all over the globe, including gold. Gold is priced in U.S. dollars. Which means that, with everything else remaining the same, a stronger dollar will usually depress the price of gold. Conversely, gold prices typically rally when the U.S. dollar weakens as market participants seek refuge in the precious metal. However, while gold typically has an inverse relationship to USD dollar, it’s not always true. Various underlying factors that drive U.S. dollars include trade surpluses, deficits, and economic conditions sometimes can be a more decisive factor in reversing this relationship, resulting in a rising dollar accompanied by the rising gold price.
Among these factors, the Fed’s monetary policy directly and strongly influences the U.S. dollar, which leads us to the third factor, inflation.
Inflation
One of the most crucial drivers of gold prices is inflation. Gold is often considered a hedge against inflation, because as the purchasing power of currency decreases due to inflation, the value of gold tends to increase. Even though we can’t predict the trend and level of inflation, the Fed will change its monetary policy to manage inflation by hiking the interest rate or shrinking the balance sheet.
To summarize, the U.S. dollar, the Fed’s monetary policy, and inflation are three interwoven elements influencing the gold price. This is why gold is presently at a record high and may maintain its bullish momentum despite aggressive Fed interest rate rises and a dominant U.S. currency. Concerns of a future recession have outweighed the attractiveness of a rising dollar.
Economic and Geopolitical Events
Finally, economic and geopolitical events like wars, natural disasters, the pandemic, or even rumors often lead to safe-haven demand for gold. Gold is seen as a safe-haven asset during macroeconomic or geopolitical stress due to its long history as a store of value.
For example, in August 2020, gold hit a record-high around $2,034 an ounce amid fears of the coronavirus spreading and causing havoc in the world economy.
Gold price predictions/forecasts in 2023 by institutions and experts?
- There are conflicting opinions among different investment institutions and analysts about the gold price outlook for 2023. Below are some predictions by institutions and experts: UBS predicts that gold will reach $1,900 per ounce by the end of 2023.
- Fat Prophets’ David Lennox indicates that gold could test new highs of $2,100 per ounce in 2022.
- Fitch Solutions expects gold prices to average $1,850 per ounce in 2023, up from its previous forecast of $1,800 per ounce.
- iGold Advisor’s Christopher Aaron predicts that gold will reach new all-time highs late in 2023 or 2024.
- CNBC reports that analysts believe the rally in gold prices has further to go in 2023, with spot gold reaching a six-month high at just below $1,850 per ounce.
Most of the analysis from institutions believes that gold prices will continue to rise because of macroeconomic uncertainties.
What’s the Latest Forecast and What Should We Keep an Eye on?
According to the London Bullion Market Association (LBMA) survey, analysts expect the average gold price in 2023 to range between $1,594 and $2,025 per ounce. Analysts surveyed are cautiously optimistic about the performance of gold and silver prices this year. The average analyst predicts an average gold price of $1,860 per ounce in 2023, compared to an average gold price of $1,800 per ounce in 2022.
U.S. Dollar and monetary policy are the key to affect gold prices in 2023
Of the 30 analysts surveyed, 43% believe the U.S. dollar and the Federal Reserve’s monetary policy will be the most critical factors affecting precious metals prices this year. 14% believe inflation will be the most vital factor, and 11% believe geopolitical factors will be the most crucial factor.
Emerging countries to reduce reliance on the dollar provide support for gold
According to Nicky Shiels, head of metals strategy at Swiss gold caster MKS PAMP Group, the gold price will rise as emerging nations’ central banks continue to minimize their Reliance on the dollar. According to the World Gold Council, net gold purchases by the world’s central banks reached a new high of 1,136 metric tons in 2022, accounting for 24% of global gold demand last year, including Turkey, China, Egypt, Qatar, the United Arab Emirates, and India.
Epilogue
Gold price is not determined by one element but by a combination of factors. Institutions and experts have varying predictions for gold prices in 2023, with most believing that prices will continue to rise due to macroeconomic uncertainties. This year, key factors affecting gold prices include the U.S. dollar, inflation, and geopolitical factors. Emerging nations’ central banks’ efforts to reduce their Reliance on the dollar are also expected to support gold prices.
Therefore, to make the best gold investment, stay in tune with the Fed’s monetary policy and significant economic events. Suppose you have not started any gold investment. In that case, HXFX Global is a professional CFD trader trusted by millions of clients for over ten years. We aim to build a safe and secure investment platform for every trader. Follow us on Facebook and Instagram so that you don’t miss out the latest trading news!
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