Outlook 2023
Gold prices to hold steady around $1,880 through 2023 - MKS PAMP Group
(Kitco News) - The threat of persistently high inflation, stagnant growth, or even an outright global recession will continue to support gold prices through 2023, according to analysts at MKS PAMP Group.
In its 2023 outlook forecast, the Swiss-based precious metals company said it looks for gold prices to average the new year around $1,880 an ounce. The outlook comes as gold prices hover near an eight-month high and push closer to $1,900 an ounce. February gold futures last traded at $1,882 an ounce, up 0.22% on the day.
"A slower Fed and rising stagflation & recession risks which will ensure both peak US$ and peak real U.S. yields. Inflation will fall, but not to target and the recoveries will be uneven and will ultimately disappoint; this combination of slower global growth, niggling inflation and deglobalization ensures gold will return as a safe diversifier in times of escalating uncertainty," the analysts said in the report.
The analysts expect investment demand to drive gold prices in 2023 as they say the precious metal is under-owned as economic and geopolitical risks continue to rise.
"Gold has been down (on a hawkish Fed fighting inflation), but it is not out with upward trajectory from here on out," the analysts said.
The Federal Reserve remained the biggest threat to gold prices as rising interest rates last year pushed the U.S. dollar to a 20-year high. However, MKS sees a peak in the greenback as the U.S. central bank is close to ending its aggressive monetary policy tightening cycle.
"The Fed has already hiked quickly, impairing global liquidity and indirectly has broken several markets. We believe they are rational in that they end hikes by mid-2023 before breaking something more significant. They will start easing in Q4 (or sooner)," the analysts said. "The US$ has peaked, but weakness will be most notable when the Fed pauses, interest rates spread narrow, and extreme or consensus positioning really unwinds."
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Not only will the Federal Reserve's impending shift in its monetary policy the MKS sees the central bank staying behind the inflation curve even as inflation calls from last year's 40-year highs.
While MKS's base case scenario sees gold prices holding relatively steady at current levels, they see a 30% chance of prices pushing to $2,300 an ounce. The analysts said that sustained market volatility and a dovish Fed on weaker-than-expected inflation are factors that could drive gold prices higher.
On the downside, MKS sees a 20% chance of gold prices testing support around $1,400 an ounce as rising inflation forces the Federal Reserve to once again aggressively raise interest rates.
