With inflation concerns troubling most global economies, metal price forecasters are coming up with wildly varying answers to where they see gold prices heading this year.
The most bullish price estimate we viewed was provided by Juerg Kiener from Swiss Asia Capital, who forecast the gold price potentially jumping to US$4,000/oz due to lingering market volatility, supported by interest rate hikes, and a looming recession.
Elsewhere, a recent study of market forecasts for 2023 by Scottsdale Bullion & Coin has prices falling to as low as US$1,500 and as high as US$3,800, with an average predicted gold price of US$2,208.
Scottsdale Bullion & Coin collected gold price forecasts and predictions from big banks, industry leaders, and financial analysts, with several issues identified as having the potential to affect 2023 prices. These include: the US Fed slowing rate hikes, a global recession, a decline in cryptocurrency demand, continued Central Bank gold buying, inflation or stagflation, a weakening of the US Dollar, and geopolitical tensions.
The reopening of China – one of the biggest buyers of gold – has improved the outlook for the precious metal’s demand in 2023 for some.
In its forecast of December 2022, Fitch Solutions expected gold prices to average US$1,850/oz in 2023, up from its previous forecast of US$1,800.
“The US Fed’s hawkish rhetoric and raising of interest rates since June had stopped short gold’s rally sparked by the Russian invasion of Ukraine. With interest rates nearing their peak and the US dollar weakening, we are now neutral to bullish towards gold prices for the months ahead,” the company reported.
Demand forecasts also fluctuating
Louise Street, senior markets analyst from the World Gold Council (WGC), recently stated that 2022 saw the highest level of annual gold demand in over a decade, driven in part by colossal central bank demand for the safe haven asset.
“Gold’s diverse demand drivers played a balancing act as rising interest rates prompted some tactical ETF outflows, while elevated inflation spurred on gold bar and coin investment. In the end, overall investment demand was up 10% on the previous year,” she said.
The World Gold Council’s latest Gold Demand Trends report reveals that annual gold demand (excluding OTC) in 2022 increased by 18% year-on-year, hitting 4,741t – the highest annual total since 2011. Boosted by a record fourth quarter, demand for gold was propelled by hefty central bank-buying and persistently strong retail investment.
Annual central bank demand more than doubled to 1,136t in 2022, up from 450t the year before and to a new 55-year record high. Purchases in Q4 2022 alone reached 417t, bringing the total for the second half of 2022 to more than 800t.
Investment demand (excluding OTC) in 2022 was up 10% on the previous year. The increase was the result of two factors: a notable slowdown in ETF outflows and strong gold bar and coin demand.
Gold bars and coins continued to hold favour with investors in several countries around the world, which helped to offset weakness in China. Total European gold bar and coin investment
for 2022 surpassed 300t, aided by persistently robust German demand. There was also significant growth in the Middle East, where annual demand increased by 42% year-on-year.
2023 forecast
Turning to 2023, the WGC economic forecasts are pointing to a challenging environment and a likely global recession which could lead to a role reversal in gold investment trends.
“If inflation comes down, this could be a headwind for gold bar and coin investment. Conversely, continued weakening of the US dollar and the moderating pace of interest rate hikes could have positive implications for gold-backed ETF demand. We will likely see jewellery consumption remain resilient, bolstered by a release of pent-up demand as China re-opens; but possibly dragged down by the squeeze on consumer spending if there is a more severe downturn. While there are several possible outcomes, gold has a precedent for performing well in turbulent economic times, highlighting its value as a long-term, strategic asset.”
The office of Australia’s chief economist noted in its latest Resources & Energy Quarterly Report that gold consumption is expected to fall in 2023, but recover in 2024.
“World gold consumption is forecast to decrease by 10% to 4,032t in 2023, as official sector buying and investment demand ease from relatively strong levels in 2022. While safe-haven demand will tend to support gold investment — so long as geopolitical and economic uncertainty persists — real bond yields are unlikely to decline to the negative levels seen throughout 2021 and 2022. This will make investors more likely to seek alternative safe-haven assets, such as interest-bearing bonds.”
However, the report tipped that world gold consumption would increase by 8.1% in 2024 to 4,357t, driven largely by continued growth in global jewellery consumption. Jewellery consumption is expected to grow by 12% year-on-year in 2024, as economic recovery and a forecast decline in gold prices support purchases in key consuming nations such as China and India.
It also forecast that world supply is expected to fall after 2022 as recycling activity eases.
“World gold supply is forecast to be relatively steady at about 4,800t in 2023 and 2024, as lower recycling activity offsets increases in mine production.
“Lower forecast gold prices are expected to discourage recycling activity, with global scrap supply declining at an average rate of 6.5% a year over the outlook period.
Gold mine production is expected to increase at an average rate of 2.1% over the outlook period to about 3,800t as new projects come online in Canada, Chile, Brazil, and Australia.
“Gold production increases will be particularly large in Canada, with the 11tpa Côté project and the 10tpa Blackwater project commencing production in the next two years.
Australian production rising
The office of the chief economist reported that Australian gold mine production is to increase in 2023–24. Australian gold production is forecast to rise at an average annual rate of 3.7% during 2023–24.
“Production will continue to ramp up for Calidus Resources’ 4.3tpa Warrawoona gold project in WA and Australian output is forecast to reach 331t in 2023–24. Bellevue Gold’s 5.7tpa Bellevue gold mine in WA is expected to come online in the second half of 2023, while Northern Star Resources’ Super Pit gold operation will begin long-term expansion from 2024.”
The report suggested that the primary risk to the Australian gold production forecast is the extent to which supply chain issues and labour or skill shortages persist in the short term. Weaker than expected gold prices present a further downside risk to the forecasts of Australian gold production. Much weaker prices would see high-cost Australian producers cease or cut back their operations.
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