(Kitco News) - Ongoing uncertainty in global financial markets will support gold prices in 2023, but investors shouldn't expect any fireworks in precious metals markets despite the best start to the year in a decade, according to analysts at CIBC.
The Canadian bank released its 2023 precious metals outlook Monday, and the analysts said that they see gold prices averaging around $1,800 an ounce during the year, roughly 5% below current prices. April gold futures last traded around $1,887.30 an ounce, up 0.13% on the day.
At the same time, CIBC sees silver prices averaging 2023 around $23.50 an ounce. March silver futures last traded at $22.335 an ounce, up 0.71% on the day.
The analysts expect the first quarter to represent the peak in gold and silver prices this year.
"This represents fairly muted downside risk and still provides investors with a safety trade option against more meaningful movements in other fiat currencies," they wrote.
Although market volatility will support gold and silver prices this year, the analysts said that the Federal Reserve's firm stance on interest rates in a muted inflationary environment will ultimately push real rates higher through the year.
"There remains uncertainty as to the severity and length of a potential recession. However, with many stocks already trading below long-term average P/E multiples and offering attractive yield risk/reward scenarios, investors will need to weigh those factors vs. the cost of owning gold in a high interest rate environment," the analysts said.
In the current climate, CIBC expects investment demand in gold-backed exchange-traded funds to remain muted throughout the year, even as physical demand remains high through at least the summer.
"ETF demand has proven to be extremely volatile, and we expect it to create headwinds in the back half of the year as expectations build for a stock market recovery," the analysts said.
CIBC's neutral outlook on gold comes even after the precious metal beat the bank's 2022 forecast. Last year CIBC expected gold prices to average around $1,750; however, gold saw a record annual average price of $1,800.90 an ounce.
The bank is slightly more bullish on silver compared to last year's performance. In 2022, silver prices averaged $21.73 an ounce.
"Both metals may, in fact, beat our forecasts, but against a backdrop of stabilizing inflation rates, a rise in real rates, and perhaps more importantly, a better stock market in 2024, it is hard to see meaningful catalysts on the horizon to further support an already multi-year rally in gold and silver," the analysts said.
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Although CIBC is roughly neutral on precious metals this year, it continues to see a solid flow at elevated levels. Long-term, they see gold prices averaging around $1,650 an ounce by 2025. Silver prices are expected to see a long-term average of around $20.
"Longer term, we continue to believe that both gold and silver have firmly established higher base price levels," the analysts said. "The need to de-carbonize mines, longer permitting cycles, and the lack of development projects with in situ infrastructure all contribute to our higher-for-longer commodity price forecasts."
Looking at silver, analysts see slightly more potential for the precious metal as growing industrial demand pushed the market's supply and demand outlook into a deficit for the next two years.
"Silver demand for solar applications continues to increase worldwide and received a boost from President Biden's Inflation Reduction Act in 2022. Electric vehicles are another key growth area for silver demand, with a typical electric vehicle needing twice as much silver as a conventional one," the analysts said.
At the same time, investment demand in silver-backed ETFs remains a major wild card this year. CIBC notes that any increase in investor demand will put upside pressure on prices.
