Gold prices to fall 10%, silver prices to fall 17% in 2023 - Metals Focus
(Kitco News) - Gold and silver have seen substantial gains in November, but the precious metals continue to face a difficult road in 2023 as U.S. monetary policy is expected to remain extremely tight, according to one precious metal firm.
In their 2023 price forecast, analysts at the British research firm Metals Focus said that they expect average gold prices to drop 10% next year, bottoming in the fourth quarter at a 4-year low of around $1,500 an ounce.
The analysts have an even more dour outlook on silver, forecasting a 17% drop in the average price in 2023. The analysts said that they see silver prices bottoming in the fourth quarter at around $16.50 an ounce.
"Despite robust fundamentals, silver is expected to be hit by overspill from gold," the analysts said.
The analysts said that the Federal Reserve's monetary policy and its impact on the U.S. dollar and bond yields will continue to be the biggest headwinds for gold and silver in the new year.
"The economy will no doubt weaken, but with a historically low starting point for U.S. unemployment and tight labor markets, we feel policy-makers will, on balance, remain hawkish," the analysts said in the report. "This will inevitably put pressure on asset prices in general. Gold and silver are likely to head lower as, in addition to higher nominal yields, eventually lower inflation should push real ones yet higher."
Market expectations have been relatively consistent in the last few months, with expectations for the Fed Funds rate to peak around 5.00% next year.
Although gold and silver prices are expected to struggle through 2023, Metals Focus said they still see the precious metals playing an essential role in investors' portfolios. The analysts said they expect gold and silver to outperform equity and bond markets.
Even at gold's lowest point this year, as prices fell to a two-year low at $1,618, the precious metal has significantly outperformed the S&P 500. Even now, as the broad equity markets push to within striking distance of 4,000 points, it is still down more than 17% this year.
"We do not expect the recent restructuring of portfolios to include gold as a diversifier to unwind within the medium term," the analysts said.
Metals Focus also expects lower gold prices to continue to support physical demand, which should provide a stable floor for prices through 2023.
The British precious metals firm sees silver underperforming gold as weak industrial demand weighs on the precious metal. Industrial uses make up more than 50% of the demand for silver.
"It could be argued that rate expectations are already factored into current silver prices, but the investment case for holding zero-yielding assets, such as gold and silver, is far from compelling when actual rate rises occur," the analysts said. "At the same time, silver's industrial qualities mean it has been impacted by supply chain disruptions and growing recessionary concerns and, even if the former should ease, the global economy has yet to escape slowdown worries."