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Gold has a path to $2,000 and silver to $25 in the second half of 2023 - Bank of America

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(Kitco News) - Precious metals investors will need to be a little patient as gold and silver could see challenging headwinds in the first half of the new year, according to Bank of America's 2023 outlook.

However, gold still has a solid path to $2,000 by the end of the year, according to the bank's official forecasts.

In a webinar presentation Wednesday, Michael Widmer, commodity strategist for Bank of America, said that while he is bullish on gold next year, he is not expecting to see higher prices until at least the second quarter of the year.

"It's going to be a difficult environment for gold in the near term," he said in his presentation. "Current headwinds are unlikely to abate until the Fed turns less hawkish. Notwithstanding, a pivot away from the aggressive rate hikes through 2023 should bring new buyers back into the market."

Although the gold market continues to see healthy physical demand, Widmer noted that investment demand is the biggest factor impacting short-term price action. He added that the current macroeconomic environment has not incentivized investors to hold the precious metal.

"The data suggests that non-commercial interest has been running at around half the level seen in the 2020 bull market," he said.

As dismal as the price action is expected to be in the first half of the year, Bank of America expects a dramatic reversal of fortunes when the Federal Reserve stops raising interest rates. The bank sees gold prices averaging $2,000 an ounce in the third and fourth quarters of next year.

Looking to 2024, Bank of America sees gold prices remaining elevated with an average price of $2,086 an ounce.

Widmer added that the underlying uncertainty that drove gold prices above $2000 earlier this year remains firmly in place. Geopolitical tensions remain heightened, inflation remains a persistent economic threat and an energy crisis threatens to push the global economy into a recession.

"Once the Federal Reserve stops raising interest rates, there should be a good market for gold," he said.

Now is the time to build a small position in gold even if prices can move lower - DeCarley Trading's Carley Garner

As to when the Federal Reserve is expected to stop hiking rates, Bank of America sees the terminal rate topping out at between 5.00% and 5.25% by March.

At the same time, Bank of America economist sees the Federal Reserve cutting interest rates by December of next year.

Along with gold, Bank of America is also bullish on silver, with prices expected to push to $25 an ounce by the third quarter and remain elevated through 2024.

Similar to gold, silver has struggled in the face of weak investment demand due to rising interest rates.

Although a looming economic slowdown could keep silver from outperforming gold next year, Widmer said that solid fundamental demand is helping to underpin the market.

Silver demand in the solar power sector is expected to continue to grow as nations look to develop green energy. Widmer also noted that silver demand in the auto sector is likely to steadily increase from 2023 through 2026.

"Investors usually look at silver both through a macro, but also a micro lens: On the macro side, a Fed pivot and stabilization of USD should make the precious metal more attractive; meanwhile, on the micro side, a stabilization of industrial offtake may help," Widmer said in his outlook report.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.