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Remarks at the LBMA panel: “behind the analysis”, 27 February 2023

Commentaries & Views

Let me start by saying thank you very much for inviting me! It’s a great pleasure for me to be on today’s panel hosted by the LBMA.

Let’s dive right in!

There are a number of factors that I believe will be quite supportive of the price of gold this year and in the years to come, irrespective of some recent headwinds.

Gold demand in China and India (which together accounts for nearly 50% of global gold demand) is likely to rebound in 2023 after showing considerable weakness over the past two years, which should have a positive effect for the gold price.

In 2022, central banks bought 1136 tonnes of gold. I expect non-western central banks, in particular, to remain heavy buyers of gold going forward as they look to further diversify their FX reserves and reduce their exposure to the US dollar and other Western currencies.

The key word in this context is “de-dollarisation”. While I do not believe the greenback will lose its global reserve status overnight, I do anticipate that more and more private and institutional investors will tend to swap some of their US dollar holdings for other assets, including the yellow metal. This should also help push the market valuation of gold higher.

As far as the supply side is concerned, I expect subdued new mining output. High inflation increases miners’ production costs considerably (think of energy, materials, and wages), which, unfortunately for many mining firms, are not fully offset by higher gold prices.

This aspect is particularly important given the continued decline in the grade of gold in many mines. That said, I expect global gold mining output growth this year and next to remain below its long-term trend (which I estimate around 1.7% p.a.), which should also be positive for the gold price.

The central banks’ interest rate hiking frenzy is certainly negative for gold: Higher interest rates increase the opportunity costs of holding gold, lowering demand and hence the price. I don’t want to talk too much about macroeconomics at this juncture.

But I want you to know that I believe central banks will overdo it, raising interest rates too much and damaging the economic cycle and financial markets to such an extent that their monetary policy tightening will need to end and be reversed later this year. This should also prove a boost to the price of gold.

Combining this and my assumption that the current price of gold is already very cheap, I forecast an average gold price of 2000 US dollars per ounce this year with an upside potential of up to 2.200 US dollars per ounce.

Let me end with some remarks on the silver price.

The expectation of a substantially higher gold price going forward is a good reason to expect the silver price to edge higher by quite a margin. My average price forecast for silver is 26 US-dollar per ounce for 2023, with an upside potential of up to 29 US dollar per ounce.

As far as silver demand is concerned, the move towards renewable energy and non-carbon emitting energy (I just mention here solar photovoltaic and electric vehicles) has a good chance to translate into a higher demand for physical silver.

An upward moving silver price is also likely to attract new investments via Exchange Traded Products, adding to overall silver demand. The supply of newly mined silver, which has been basically stagnating since

2012, is likely to remain subdued. Higher production costs due to elevated inflation and thus downward pressure on miners’ profitability make a decline in CAPEX likely in 2023 and beyond – which can be expected to keep the silver market relatively tight, supporting into higher prices.

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