Welcome to the Kitco News Outlook 2023 Series. Uncertainty continues to dominate financial markets as central bank monetary policy pushes the global economy into recession to cool inflation. Stay tuned to Kitco News for the experts on how to navigate the turbulent financial markets in 2023.
(Kitco News) – The gold market had a solid end to 2022, and according to a research firm, its momentum should continue into the fourth quarter of 2023.
In their 2023 outlook, analysts at BCA said they see gold prices rising above $1,900 an ounce over the next year. The positive outlook comes as the company began building a bullish position in November.
The research firm is bullish on gold as it expects a peak in Federal Reserve monetary policy, persistently high inflation and global economic uncertainty to support prices in the new year.
“Gold’s price path next year will depend on the Fed’s monetary policy and its impact on the USD exchange rate,” analysts said in the report. “Against a backdrop of heightened uncertainty over the next year and a dovish Fed set to weaken the USD, demand for safe-haven gold will increase.”
Markets are currently expecting the US Federal Reserve to hike interest rates to a peak of between 5.00% and 5.25% in the first half of the year. BCA said that amid mounting recession fears, the central bank is expected to start cutting rates by the end of the year or early 2024.
Although inflation has fallen from its summer highs, BCA warned investors the threat lingers and analysts see the risk of it being unanchored in 2023.
“We expect the Fed to stay behind the inflation curve as it targets core inflation, not headline inflation, when conducting monetary policy,” the analysts said. “This will derail currently well-anchored inflation expectations as we believe headline inflation – mainly energy and food prices – is driving wage and price decisions by households and businesses.”
Alongside rising investment demand for gold, BCA sees increased physical demand driven by central bank purchases.
“In the longer term, EM central banks will look to replace the US dollar with gold in their reserves to protect themselves from the risk of Western financial sanctions that Russia is currently grappling with,” the analysts said.
The biggest risk to BCA’s bullish outlook is the lingering threat of inflation, which it says would force the US Federal Reserve to continue its aggressive monetary policy.
“Higher interest rates will increase the opportunity cost of holding unprofitable gold bullion and support the US dollar, which is anticorrelated to gold,” the analysts said.
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