(Kitco News) - While the world will see slower growth and higher inflation, it may not be the best environment for gold, according to one precious metals analyst.
In an interview with Kitco News, Bernard Dahdah, precious metals analyst at Natixis, said that he sees more downside risk to gold and silver than on the upside in 2023.
He explained that the precious metal could continue to struggle to attract investor attention in the new year as he expects real rates to remain positive.
In its 2023 economic outlook, the French bank said there is no doubt that there will be a recession in 2023; however, the economists expect a mild retraction with growth bouncing back in 2024.
"We are staring at a big slowdown in growth, but then inflation should follow. Key rates at the world's central banks are close to their terminal levels (after peaks in H1, the next moves could be mostly on the downside, at least in 2024). Winter is coming but that's normal, spring will come too," the economists wrote in their 2023 outlook report.
The bank's economists look for the Federal Reserve's aggressive monetary policies to slow the U.S. economy. Still, with slower growth, inflation is expected to fall back dramatically to 3%.
Dahdah said that this is the scenario that gold investors need to focus on. He noted that base effects next year will significantly impact inflation, especially during the summer when consumer prices peaked.
"The Federal Reserve will start to cut rates next year, but inflation is going to fall faster than the central bank cuts rates and that keeps real rates in positive territory," he said. "That will be negative for gold."
Along with persistently high real rates, Dahdah said that investors also need to keep an eye on growth forecasts. Economists expect China's economy to pick up next year as the government abandons its COVID-19 restrictions.
Dahdah said that any improvement in the global economy would probably support equity markets over precious metals, in a risk on trade.
"If you ask me where gold prices are going, I think we stay around these levels, but the risks are to the downside," he said.
Overall, Dahdah said that he is relatively neutral on gold. He added that solid physical demand and further purchases from central banks should continue to support gold prices above $1,600 an ounce.
"Central bank gold demand is not going to end anytime soon, so I expect to see more purchases in 2023 as nations continue to reduce their exposure to the U.S. dollar," he said.
"I am hard press to see what could really drive gold prices lower next year," he added. "But I also don't see why we would go back to $2,000 or even $1,900."
Dahdah said that the world would have to see another significant economic or geopolitical crisis to push gold prices back to their record highs.
|
| There's a barrage of central bank decisions this week but gold investors need to watch two of them |
Dahdah is relatively neutral on silver as he sees it underperforming the yellow metal next year.
Although silver is expected to see solid demand, particularly as demand for solar energy increases, Dahdah said there is still an abundant mine supply as it is often mined as a bi-product in base metal production.
"Silver's industrial demand looks a little intriguing, but I think as demand for copper and nickel pick up, you are going to see a lot of silver come online and that will keep prices under control," he said.
Dahdah said he sees silver prices hovering in the low $20 range through 2023.
As to what metals he likes in the new year, Dahdah said he likes copper and various battery metals. He added that the European energy crisis will continue to drive demand for alternative energy, which needs a significant amount of copper and other base metals.
"Diversification is the name of the game and the rollout of renewables is being fast-tracked everywhere (almost 60GW of solar capacity could be installed in 2022 in Europe), to the point they could become the main source of energy worldwide in less than three years!" said energy analysts at Natixis in the 2023 outlook.
