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LBMA annual survey sees gold prices averaging the year around $1,859 an ounce, silver to hold around $23.65

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Welcome to Kitco News' 2023 Outlook Series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into a recession to cool down inflation. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2023.

(Kitco News) - After its best start to the year in a decade and up 20% from its November lows, the London Bullion Market Association (LBMA) members are looking for gold's hot rally to cool slightly through the rest of the year.

In its annual forecast survey, the LBMA said participating analysts are "cautiously optimistic" about gold and silver this year. The analysts see gold prices rallying 3.3% this year with an average annual forecast of $1,859.90, compared to last year's average price of $1,800.09 an ounce.

At the same time, analysts see average silver prices rallying 8.8% to $23.65 an ounce, compared to 2022's average price of $21.73.

The most bullish forecast in the LBMA survey is reserved for platinum. Analysts see platinum's average price for 2023 at $1,080.40 an ounce, up 12% from last year's average price of $960.508.

Meanwhile, analysts are bearish on palladium, with a 2023 average forecast of $1,809.80 an ounce, down more than 14% from the 2022 average price of $2,112.06.

According to the survey, the analysts see three major factors driving precious metals prices this year. Of the 30 analysts surveyed, 43% expect the U.S. dollar and the Federal Reserve's monetary policy to have the most significant impact on gold and silver. At the same time, 14% see inflation as the main driver, and 11% are watching geopolitical factors.

Gold to rally back to $2,000 in 2023

While LBMA members are bullish on gold and silver, there could be some volatility in the marketplace as the forecasted range is $755, relatively similar to the trading range in last year's forecast. Looking beyond average prices, most analysts expect gold prices to push back to $2,000 an ounce this year.

For gold, the most bullish average forecast came from Peter Fertig at QCR Quantitative Commodity Research. He is looking for an average price of $2,000 an ounce.

"Gold proved again that it is not a good hedge against inflation. The reason is simple: as gold bears no interest, U.S. money market rates and bond yields, as well as the U.S. dollar, are the dominating factors. They had all been headwinds for gold last year. However, in this year, they turn into backwinds for gold prices, which are expected to gain considerably," he said in his forecast.

Fertig also expects the U.S. dollar to weaken this year as the European Central Bank outpaces the Federal Reserve in rate hikes.

Thorsten Polliet, chief economist at Degussa, also saw an average gold price of $2,000 an ounce for 2023; however, he expects a higher peak in gold, with his forecast topping out at $2,200 an ounce.

"The price of gold can be expected to be strongly supported by economic developments in 2023. Most notably, there is a good chance that major central banks will lower interest rates again as early as H2 of this year as inflation eases and growth disappoints," he said in his forecast.

The most bearish in the group was Marcus Garvey, precious metals analyst at Macquarie. He said he sees an average price of $1,594 an ounce this year.

"We expect a further 25bps of tightening in 1Q23 and then the Fed to hold rates firm, even as inflation falls with the U.S. economy entering a recession. This period of rising real interest rates (with the absence of a Fed "put") should see gold prices fall alongside risk assets and keep the U.S. dollar relatively firm, even as the dollar index is likely to have made its cycle high in 2022," he said.

Gold prices largely ignore IMF's upgraded economic forecasts as risks remain

Silver to hold steady in 2023

Volatility in silver is also expected to be high this year, trading in the $20.30 range.

Bruce Ikemizu, analyst at Japan Bullion Market Association, was the most bullish on silver as he sees prices rallying to a high of $35 with an average price of $27 an ounce.

"Silver will be supported by the prospect of supply shortage and renewed interest from investors of the world," he said.

Debajit Saha, a metals researcher at Refinitiv, said that he sees silver prices averaging the year around $17.50 an ounce.

"Rising interest rates in the U.S. will continue to weigh on the price. Support is not expected to come from the industrial front either, barring the solar segment, as higher interest rates are set to put a drag on the economic growth," Saha said. "we believe the market may remain extremely volatile in the first half of the year, as inflation in the U.S. has remained elevated, while fears of the recession due to rising interest rates may create headwinds, pushing the price to $25.50/oz. In the second half, we expect the economic risks to subside reasonably, which could put sufficient pressure on the price to go below last year's low."

Platinum to shine while palladium falls

James Steel, precious metals analyst at HSBC, said that he expects platinum to build a base around $1,000 an ounce, with an average price of $1,241 an ounce.

"Auto demand is likely to benefit from increased substitution with more expensive palladium and a continued recovery in production. Auto recycling supply may also rise, but be capped by limited new inventory," Steel said.

Garvey is the most bearish on platinum, with an average price forecast of $988 an ounce.

"The pre-investment balance is expected to register a small surplus in 2023, as catch-up refining of work-in-process inventories is offset by improved auto production, demand substitution and higher heavy-duty diesel loadings. The post-investment balance could therefore swing into deficit, but our expectation for the Fed to stay the course and bring inflation back to target presents a clear headwind to this," he said. "Hydrogen remains the great hope for demand growth, but continues to impact sentiment more than near-term fundamentals, at this stage."

Looking at palladium, Steel is also the most bullish on the metal in 2023, with an average price of $2,180 an ounce.

"While palladium's supply-demand balances may indicate a narrowing deficit from 2022 levels, we believe it is still price supportive. Much may depend on Russian flows and geopolitical risk," he said.

Polleit is the most bearish on palladium as he sees average prices falling to $1,550 this year.

"With demand being overwhelmingly driven by the automotive industry, palladium's future is rather unclear. In any case, we do not believe palladium should be trading too far above our estimated platinum price," he said.

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.