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World Bank sees gold prices outperforming broader commodity sector as economic growth weighs on demand

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(Kitco News) - Since their peak in June 2022, commodity prices have seen their biggest decline since the global economy ground to a halt at the start of the COVID-19 pandemic, according to the latest report from the World Bank.

At the same time, the international bank for central banks added that even after dropping 32% from last year"s peak, commodity prices are expected to remain above pre-pandemic levels, adding to affordability and food security concerns.

With lower economic activity weighing on commodities, the World Bank said in its updated outlook that it expects to see commodity prices fall 21% this year, compared to last year"s 45% rise. Prices are expected to remain relatively stable through 2024.

However, the World Bank said that they see significant upside risks to prices this year.

"Risks to the forecast are tilted to the upside, primarily because many of the factors underlying the shocks to commodity markets in recent times still prevail," the analysts said.

Downside risks to commodity prices remain tighter monetary policies worldwide as central banks continue to fight persistent inflation threats. The analysts noted that commodity prices, holding above pre-pandemic levels, are expected to impact inflation, which could lead to an even further slowdown in growth.

"Continued elevated inflationary pressures could require an even more aggressive policy response from major central banks. Following the recent financial stress episode, credit conditions could tighten. If these types of risks occur, they would dampen demand for industrial commodities and lead to lower prices," the analysts said.

In a world filled with uncertainty, the World Bank said that precious metals will remain an attractive asset. The analysts said they expect precious metals prices to rise 6 % this year, outperforming the broader commodity market.

Despite the recent surge in silver and platinum prices, analysts at the World Bank note that gold has led the sector, rising 9% in the first three months of the year. The analysts expect gold prices to remain elevated, averaging around $1,900 an ounce during the year.

The World Bank said that safe-haven demand will continue to support gold through the rest of the year, even if the Federal Reserve maintains its aggressive monetary policies and other central banks continue to raise interest rates.

"Increases in central bank policy rates since 2022 have restrained gold prices by raising the opportunity cost of holding the metal. However, the recent divergence of movements in gold prices and the yield on 10-year Treasury Inflation Protected Securities (TIPS) suggests that the impact of geopolitical and economic uncertainty on prices has been stronger than the opportunity cost effect," the analysts said.

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The World Bank said unprecedented central bank demand could provide even more momentum for gold this year.

Meanwhile, silver prices are expected to rise 6% in 2023, averaging $23 an ounce. The Bank remains long-term bullish on the precious metal.

"In the longer term, the increase in production of solar photovoltaic products, automotive, and certain electronics components (such as for 5G internet) could lead to greater demand and higher prices," the analysts said.

The World Bank is also bullish on platinum even though the precious metal saw a neutral start to the year.

"Prices are expected to remain around $1,000 per troy ounce in 2023, a 4 percent increase over 2022, and rise a further 5 percent in 2024. Demand for 2023 is expected to grow strongly, driven by industrial, automotive, and investment sectors, while supply in 2023 is expected to be largely stable," the analysts said. "The long-term outlook for platinum demand is positive as the energy transition intensifies, given its use in electrolyzers, carbon-free hydrogen production, and fuel cells."

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.