The World Bank expects the Federal Reserve to continue raising interest rates through 2023. That’s why he says the price environment for gold will be tough next year, in his latest commodity price forecast.
World Bank lowers gold forecasts
The international financial institution released its updated forecasts on Thursday. In this context, the World Bank expects gold prices to fall another 4% next year. This forecast comes after gold reported that it fell 8% in the third quarter. Analysts make the following assessment in the report:
The rise in interest rates and the appreciation of the US dollar outweighed concerns about rising inflation and geopolitical risks. The Fed has increased policy rates five times this year, raising it by a total of 3 percentage points. This caused the US dollar index (DXY) to rise 16% to its highest level in 20 years. Meanwhile, the yield on 10-year Treasury Inflation-Protected Securities (TIPS) reached its highest level since February 2011. Thus, it raised the opportunity cost of investing in zero-yield assets.
“Current forecast: Gold prices will fall by 4% in 2023”
The latest price forecast is mixed compared to the World Bank’s April forecasts. The bank had expected gold prices to rise modestly in 2022 and then fall 10% next year. The updated outlook comes as gold prices continue to hold long-term support at around $1,650. Another 4% drop in price means gold drops to $1,600.
The report states that investment demand for gold will continue to have the largest impact on market prices. cryptocoin.com For five consecutive months, investors have liquidated their positions in global gold-backed exchange-traded funds. At the same time, the report notes that lower precious metal prices are helping to support physical demand. However, this will not have much of an impact on prices. Analysts underline the following points in the report:
Physical purchases are unlikely to be enough to offset the monetary headwinds facing investment demand. Interest rate increases are likely to continue in the coming year. Therefore, we expect the precious metal price to decrease by 4% in 2023.
World Bank predicts further decline for silver
Looking at silver, the report says prices fell 15% in the third quarter. He notes that the metal underperforms gold as recession fears put pressure on industrial demand expectations. The report includes the following assessments:
Photovoltaic demand continues to increase. However, global electronics production fell for the fifth consecutive month in September. Because of this, consumer electronics demand has weakened significantly. We expect sluggish physical and investment demand to keep silver prices under downward pressure. We expect silver prices to be 16% lower in 2022 and to remain soft in 2023.
However, in the long run, the bank remains optimistic that silver prices will recover. “Silver continues to benefit from the energy transition, particularly for its use in solar photovoltaic cells,” the analysts say.
