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Gold demand to drop 9% in 2023 as central banks slow purchases: Metals Focus

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(Kitco News) Gold demand is expected to drop by 9% in 2023 as central banks slow their official purchases of the precious metal after a record year, with prices also facing downward pressure in the second half of 2023, according to Metals Focus.

"The projected 9% drop in demand is almost entirely down to a fall in net official sector purchases from last year's all-time high; most other demand sectors will see modest growth," Metals Focus said in its Gold Focus 2023 report published Wednesday.

While demand drops, the total gold supply is forecasted to grow by 2% this year, driven by higher mine production and recycling, resulting in the gold market returning to a market surplus of a little over 500 tonnes this year.

The gold price outlook is mixed for the rest of 2023. While the annual average price is estimated to rise by 5% to a new all-time high of $1,890, prices will come under pressure in the second half of this year, said the research consultancy firm.

"At $1,730, our projected low for 2023 suggests a relatively restrained 12% drop from current levels as of late May, and at $1,890, our forecast for the annual average marks another record high," said Philip Newman, managing director at Metals Focus.

Year-to-date, gold is up around 7% following a strong rally driven by expectations that the Federal Reserve is near the end of its tightening cycle and might even need to cut rates at the end of the year. However, that rally stalled in May as market expectations shifted to a 'higher-for-longer' rate outlook.

"As investors adjust interest rate expectations, this will create new headwinds to gold prices in H2.23 Metals Focus cautions that current expectations of rate cuts before the end of 2023 are too aggressive in the light of persistent U.S. labor market strength and still elevated inflation," the report said. "We still see the U.S. economy heading only into a soft landing, which will give the Fed room to keep interest rates high for longer."

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