After a rough year, the gold price ends 2022 with a rally around $1,800. The precious metal is looking to end the year with an overall decline of less than 2%. This will make it one of the best performing assets just behind the US dollar. As bullish sentiment rises in the market, 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 most 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. In 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 taking a restrictive stance enough… We will get to this point and then the question will be, how long will we stay there? And there’s a strong opinion in committee that we should stay there until we’re really sure that inflation is falling sustainably. We think this will take some time.
Gold price will rise to this level
Economists claimed that the central bank was nearing the end of its tightening cycle. He also states that this could be good 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 adjust to a new terminal rate hike of over 5%. Analysts at the German bank also said:
After what was expected to be the last rate hike in March, a period of unchanged interest rates is likely to follow before the Fed cuts the key rate again towards the end of 2023, given a weak economy and low inflation. The Fed, on the other hand, is not yet predicting this. 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 enough and the US economy will be in recession 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. As we have reported as cryptokoin.com, the Federal Reserve is slowing the rate 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 base on which prices are expected to recover. Many analysts predicted that gold prices would hold support above $1,600 an ounce.
Douglas Groh, senior portfolio manager at Sprott Asset Management, said changing economic trends could mean the world is entering a period of higher inflation. He added that the Federal Reserve is unlikely 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 maintain their purchasing power. He also added:
The geopolitical landscape has changed, and in the next few years we will see a reversal of the globalization trend. Bringing production back to the west and the global energy 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 among the companies with the highest decline in gold in 2023. The Canadian bank sees the precious 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 of rates falling significantly before the two percent inflation target is met should encourage many investors to buy gold to compensate for the lack of meaningful real returns across most of the Treasury curve.
Along with Bank of America, Saxo Bank is one of the most optimistic about gold ahead of the New Year. Ole Hansen, head of commodity strategy at the Bank of Denmark, said he did not expect the Fed to get inflation under control.
The risk of a recession and the FOMC’s entry into economic weakness – potentially failing to contain inflation – continue to strengthen the upside risk for investment metals in 2023.
Precious metal faces record demand
The Federal Reserve sees core inflation rising 3.5% in 2023, which is relatively in line with consensus estimates ranging from 3% to 4%. The University of Michigan reported that in its preliminary forecast, it sees consumer inflation rise 4.6% next year. Also, the precious metal has enjoyed historic demand from central banks, although investment demand has been sluggish through 2022. Juan Carlos Artigas, head of global research at the World Gold Council, said that while purchases have soared this year, it is a continuation of a trend that has been built for more than a decade.
