In 2022, gold increased by over 1.3%, and analysts have suggested that the increment to be higher in 2023. The gold market is over $12 trillion and has historically been one of the most well-performing financial markets to exist. Against the USD, gold was up by more than 2.36% right when 2023 started, and the last two months have seen gold prices rising by 14.55% and counting.
In fact, ever since the year 2000, the gold market has given an average return of 10%, which is much higher than the average returns given by bond and equity markets. In 2023, this average return percentage is expected to rise substantially.
In our article, we will highlight the future predictions for gold prices in 2023 based on industry articles.
2022: The post-pandemic affect on Gold prices
2022 was a beaming year for gold as it hit a high of $2,070 per ounce. Even after the uncertainty followed by the Russia-Ukraine crisis, other financial markets crashed but gold maintained its prices. However, only after the US Fed hiked interest rates to ward off the high inflation did gold prices hit $1,620 in November 2022. This was soon stabilised and bought back to $1,900 when rising interest rates, inflation, and a high-risk environment were brought under control through various monetary and fiscal policies by central banks across the globe.
Gold ETFs gave significant returns in the first half of 2022 and amassed nearly $15.3 billion worth of gold ETFs to date. The performance of gold prices against all major currencies was positive, with a 0.6% higher return than USD, 9.4% higher return than EUR, 18.7% higher return than JPY, 12.2% higher return than GBP and more.
The end of the third quarter of 2022 brought gold prices back on track, with the central banks globally buying roughly 1,136 tonnes of gold, the highest ever in a three-month period historically. This bought back gold prices nearer to their previous high at $1,813 per ounce.
2023 Forecast For Gold Prices
As of January 17th, 2023, gold futures in the international markets had seen gold prices surpass the significant level of $1,900 per ounce. The yellow metal has already reached an all-time high price in many countries like India. By mid-January 2023, gold prices hit their all-time high since April 2022 at $1,929 per ounce.
Adding to the high gold prices, China, one of the biggest gold consumers, is coming out of its stalled growth post Covid. Their increasing gold demand as Covid curbs are relaxed could also further increase gold prices. According to analysts, a rate hike of at least 25 basis points is expected by the Fed’s next policy meeting in March.
Juerg Kiener, managing director and chief investment officer of Swiss Asia Capital, expects gold prices to increase to $4,000 an ounce in the year 2023. This is due to many economies facing recessionary pressure, which could lead to central banks decreasing interest rates and making gold more attractive. According to Kiener, this move can ‘really make new highs’. A major pullback and resistance can be seen at $1,950 an ounce in the first quarter of 2023, signalling gold investors to trade the yellow metal accordingly. The resistance could also witness a breakthrough in the coming quarters.
Based off industry articles for now, the overall gold trajectory looks favourably positioned among the challenging global economic conditions of high-interest rates and inflation. Geopolitical risks and potential stagflation are other contributions to gold’s positive outlook moving forward.
This graph has been recreated from the original source: https://goldprice.org/gold-price-history.html. Please note this image is a representation only and is not provided as general or personal advice.
Hawkish Bias at Fed
XAU/USD prices are still around $1,850 per ounce with a slight increment every day, and the Fed is perceived to slow Fed’s rate hikes against the recessionary pressures. The weakening of the USD is supporting the dominating gold over the currency. At the December 2022 FOMC (Federal Open Market Committee) meeting, the Federal Reserve implemented multiple interest rate increases in its effort to combat inflation, which reached the highest levels in the past 40 years. Specifically, the Fed raised rates by 75 basis points and 50 basis points at various intervals throughout the year. As a result, the current range of the central bank’s policy rate stands at 4.50% to 4.75%.
The tensions between US-China due to the former market fearing Chinese spying on the American economy are likely to rush gold prices higher since investors may turn towards the safe haven asset. This can lead to gold prices increasing in the latter part of the year, with a temporary slowdown in the first two quarters of 2023.
US policymaker optimism vs recession
The US policymaker’s unending optimism has added to the strength of XAU/USD’s bears’ confidence. Treasure Secretary Janet Yellen and US President Joe Biden have ruled out the possibility of increasing recession in the country. With the gold prices gaining for the second time in a row in January 2023 against the USD, the gold prices are expected to be ahead of the USD in the coming months.
Inflation and gold have a direct relation, which means a rise in inflation increases gold prices. The US inflation right now is around 6.4% as of January 2023 and has only slightly decreased from last year. With the US inflation expected to increase by 0.5% of the current inflation month on month, the outlook for gold prices is positive in 2023.
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