The monetary policy of the US Federal Reserve and the associated development of the US dollar will be a decisive factor for the further development of the gold price.
According to experts, the price of gold can remain at a high level in the coming year. From their point of view, whether 2023 will be a year of precious metals or not depends above all on how far the US Federal Reserve will raise the key interest rate in the fight against high inflation.
If interest rates in the US stop rising and the US dollar loses value, “gold can shine again in 2023,” said commodities expert Carsten Fritsch from Commerzbank. According to the World Gold Council (WGC) annual outlook, the interplay between inflation and central bank action will be crucial.
In 2022, the gold price ultimately remained at a high level thanks to inflation rates, some of which were record high, an impending energy crisis and the war in Ukraine. At times it was just below the record high of summer 2020 ($2075). After a downturn in the months of May to September due to the sharp rise in interest rates and the dollar, the precious metal, which investors value as a crisis currency, has been increasing noticeably since the beginning of November. The price has since risen by almost $200 a troy ounce to $1,800 most recently.
The main reason for this increase lies with the US Federal Reserve, which has already shifted down a gear in the fight against high inflation. Hopes that the US Federal Reserve would take less aggressive action against high inflation have weighed on the dollar since November. Since gold is traded in dollars on the world market, weakness in the US currency makes the precious metal cheaper, which drives demand.
What is the US Federal Reserve doing?
Among economists, it is considered certain that inflation in the US has peaked. Nevertheless, the Fed will continue to raise interest rates in 2023, they say unanimously. The crucial question on the gold market is: When will the Fed stop raising interest rates, and can interest rates fall again as early as 2023?
The interest rate peak in the USA is currently expected to be around five percent, which is likely to be reached next spring. Economists then expect a phase in which interest rates will remain stable until they are likely to fall again against the background of a weak economy.
“This could be the case in the second half of next year, because inflation will then have fallen far enough and the US economy has been in recession since the beginning of the year,” said Fritsch. Should this actually occur, a slight increase in the price of gold can be expected. Fritsch expects a gold price of $1,850 per troy ounce (31.1 grams) by the end of 2023.
Analysts surveyed by the Bloomberg news agency assume on average that the price of gold will be around $1,835 an ounce by the end of 2023. The range extends from $1,600, which is expected by commodities experts at Landesbank Baden-Württemberg, to $1,900, which experts at Deutsche Bank are expecting.
“Geopolitical Unrest Potential”
According to the World Gold Council, there are other factors besides US monetary policy that should support the price of gold in 2023. The WGC experts referred to the “potential for geopolitical unrest”. In addition, an improved economy in China is expected, which should also support demand for the precious metal. On the other hand, comparatively high yields on government bonds could curb demand for gold. Because with rising interest rates, bonds are becoming an ever greater competitor in the search for safe investments by investors.
Fritsch pointed out that gold lost far less in value in 2022 than shares, government bonds or cryptocurrencies. “So investors have been able to secure the majority of their wealth in gold during this challenging year.” Calculated in euros, the price of gold even reached a record high in the crisis year 2022, when 1,902 euros were paid for an ounce at times in March. Fritsch: For the year as a whole, “gold investors in Europe can look forward to a profit”. (dpa)