What a great year for precious metals, with gold and silver continuing to outperform the broader market. You may have heard about the whole thing with the U.S. dollar. Well, what's happening is that the U.S. Dollar is not worth as much as it once was. And the price of gold has been steadily climbing because of this. But not only is gold on a steady climb, silver and other metals are too!
As we head towards the end of 2020 on the other side of the year, it's time to take another look at gold and silver. The precious metal forecasts are in for 2023 and this article provides what you can expect.
Before the forecast, let's look at silver and gold.
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What's the Big Deal?
We use precious metals like gold and silver in many ways. The most common way one thinks of is a nice shiny ornament hanging on your walls, around your neck or in your jewelry box. Gold and silver have been used for years as exchange mediums.
One can easily trade these metals for products in the market or from other countries. We use these metals on a daily basis as jewelry, electronics and even in our cars. Without them, technology would not exist as we know it.
These metals are also used in electronic devices because they are resistant to oxidation and heat. So if you use a computer or laptop without a cooling fan, the device will get warm enough to damage it sometime after so much time passes.
Even without the fan, devices will overheat because of the components built using gold and silver. Products like smartphones, computers and supercomputers use them for their processing capabilities. But that only takes one aspect of gold and silver's uses.
Silver and Gold Recent Performance
2022 was a good year for gold prices as the market increased. Yet, its price didn't rise as much as market watchers had predicted or as much as eager investors had hoped.
Although 2023 forecasts are more upbeat, it's vital to remember that they're just that: forecasts. If 2022 fell short, 2023 is just as likely to fall short.
Gold's growth was hampered in 2022 by many economic factors, including rising interest rates, rising prices of U.S. Treasuries, a possibly strong U.S. currency and the unknown state of demand in China, gold's largest market.
Gold has a lot going for it in 2023, even though the year may be full of unknowns and possible obstacles. The Fed has slowed the rate at which it is raising rates, but it is still increasing them.
Reasons for Gold Underperformance in 2022
While gold prices increased by 1.3% in 2022, inflation reached a high of 9.1% in June of that year. Gold prices would have risen less than expected if inflation were the primary factor in determining its worth.
Gold's value, however, is affected by various other variables—the U.S.For one thing, Treasuries have increased in value since the Federal Reserve began aggressively raising interest rates. Higher U.S. Treasuries have a depressing effect on the price of gold and bond yields.
The value of the U.S. dollar rose throughout 2022 until the year's end, as rates rose amid such global instability. As the dollar's increased worth makes it a more secure investment, fewer people will shell out their hard-earned cash for gold as its price rises.
Gold Is Expected to Rise in 2023
Gold futures began to rise in value in late 2022. The timing couldn't have been worse since the dollar was already beginning to weaken. Either way, a few hiccups are expected, but 2023 should be a good year for gold.
Commodities are notoriously unpredictable in the short term and this view is contingent on the U.S. currency continuing to weaken in addition to a few other factors. Yet there are already rudimentary signs along these lines.
But, the Fed is likely to keep raising rates throughout 2023, albeit slower than was disclosed by the most recent rate rise, which might cause the U.S. dollar to reverse direction. United States Treasuries are similarly sensitive to changes in interest rates. Keeping the currency strong makes it more difficult for gold prices to rise.
Should interest rates hold steady, gold might have a good year due to rising demand in China following the relaxation of COVID-19 controls. However, in December, we observed a Chinese economy that had an adverse reaction to the recent flip in COVID-19 policy, with firm closures, labor difficulties and many people electing to stay at home.
The virus's rapid spread across the country makes it impossible to predict how the pandemic will affect China's economy.
Critical Drivers for Precious Metals in 2023
Numerous factors drive the price of gold, silver and other metals. As we said earlier, gold and silver prices have steadily climbed.
Fed Policies and the U.S. Economy
The Fed is the primary monetary authority for the United States and plays a significant role in determining the direction of the economy. As such, its policies and the overall economic health of the U.S. will be major factors in determining the prices of precious metals.
In 2023, the Fed will likely be dealing with the fallout from the COVID-19 pandemic. The Fed has already taken unprecedented measures to support the economy by cutting interest rates and increasing asset purchases. These measures will likely continue throughout 2023 to stabilize the economy and support a slow recovery.
Lower interest rates will make borrowing money cheaper and make it easier for individuals and businesses to invest in precious metals. The increased asset purchases by the Fed could also cause a rise in the prices of precious metals since it will be buying them with newly created money.
The overall health of the U.S. economy in 2023 will also be a significant driver of precious metal prices. The economic recovery is likely to be slow and uneven, but spending and investment could increase as more people return to work, leading to higher prices. However, if there is a decrease in economic activity, the demand for precious metals could decrease and prices could fall.
Inflation is a broad measure of price-level increases over time. It affects the value of money, which can cause the prices of commodities, including precious metals, to increase. This price increase is fueled by the increasing demand for precious metals due to the fear of inflation.
An increase in money supply or demand for goods and services causes inflation. When the money supply increases, the price of goods and services rises, making it harder for people to afford them. This can lead to people turning to precious metals to store value.
The increasing demand for precious metals can be attributed to many factors. One is the declining value of fiat currencies due to global political unrest and economic uncertainty. Another is the increasing wealth inequality, which can lead people to seek alternative investment opportunities such as precious metals.
In addition, persistent inflation in 2023 could be driven by higher energy costs, wages due to labor shortages or growing public debt. These factors could lead to higher prices for goods and services and increased demand for precious metals as an investment option.
Weakening of the U.S. Dollar
Precious metals such as gold and silver, usually remain relatively unaffected by the fluctuations of other financial instruments and currencies and generally increase in value when the U.S. dollar weakens. This is due to their status as safe-haven assets and their inherent ability to hedge against inflation.
The U.S. dollar has weakened substantially since the onset of the coronavirus, with the U.S. Dollar Index falling from approximately 103 in February 2020 to below 91 in February 2021. This depreciation of the U.S. dollar has already positively impacted the prices of gold and silver and this trend is expected to continue.
The weakening of the U.S. dollar is not only due to the pandemic but is also driven by the U.S. government's expansive fiscal policy, causing the U.S. to print more money. The increased money supply has caused the U.S. dollar to depreciate, making other currencies such as the euro and the Japanese yen, more attractive.
The weakening U.S. dollar also affects commodity demand, including precious metals. Commodities become less expensive for foreign buyers when the U.S. dollar weakens, making them more attractive investments.
This increased demand for precious metals helps to drive up their prices. Furthermore, a weak U.S. dollar can also increase demand for U.S. exports, which benefits precious metals as the U.S. is one of the significant producers of gold and silver.
Geopolitical events and trends can significantly impact the price and demand for certain metals, especially gold and silver.
One key geopolitical event that could affect the precious metals markets in 2023 is the U.S. presidential election. Investors may flock to gold and silver as safe-haven assets if the election outcome is uncertain or unpredictable.
Additionally, suppose the election results in a more nationalist or protectionist outcome. In that case, it could increase tariffs and another trade protectionism, leading to higher demand for precious metals.
Another key geopolitical event that could affect the precious metals markets in 2023 is the potential for increased geopolitical tensions between the U.S. and China. This could lead to higher demand for gold and silver due to the perceived safe-haven status of the metals.
Additionally, if the US-China trade war continues to escalate, it could lead to currency devaluation and other economic uncertainty, further increasing demand for precious metals.
Finally, significant geopolitical events or trends in other parts of the world could impact the precious metals markets in 2023. For example, a large-scale conflict in the Middle East could lead to higher demand for gold and silver due to their safe-haven status. A major economic crisis in Europe could also lead to currency devaluation and increased demand for precious metals.
The Opening Up of China
China is a major player in the global economy, so any changes the Chinese government makes can significantly impact global markets and commodities such as precious metals. The lifting of the zero-COVID-19 policy in 2022 is expected to bring about a surge in economic activity, which could lead to higher demand for gold and silver as investors look to hedge their portfolios against economic volatility.
In addition, China is one of the world's largest gold producers, so an increase in production from the country could impact the global supply of gold. As the supply of gold increases, the metal price could drop, which could mean lower costs for investors.
Furthermore, an increase in economic activity in China could lead to higher inflation, which could cause the prices of gold and silver to rise in response. Given the unique properties of precious metals, investors may be drawn to them as a hedge against inflation.
The opening up of China could also lead to an increase in demand for luxury goods, which may also boost the prices of gold and silver. As the demand for luxury goods increases, the demand for precious metals used in producing these goods could also increase, further pushing up the prices of gold and silver.
The State of the Global Economy
With global growth slowing and the specter of deflation looming, central banks are likely to keep interest rates low to stimulate economic activity. This will, in turn, weaken the U.S. dollar, making precious metals like gold and silver more attractive investments. Low interest rates also lessen the opportunity cost of owning precious metals, thus bolstering their appeal as an attractive store of value.
In addition, central banks' quantitative easing policies, which have been in effect since the 2008 financial crisis, are likely to continue in 2023. This should continue to drive up the demand for gold and other precious metals as investors flock to perceived safe-haven assets.
2023 Forecast for Other Precious Metals
Let's now look at how the price of silver, platinum, palladium and other metals will perform in the coming years.
Silver's price should remain stable as long as there is a rise in demand for cell phones. According to Heraeus, silver consumption will increase in 2023 as more 5G-enabled gadgets hit the market. Moreover, 2023 is anticipated to see sustained growth in the market for photovoltaics. Silver jewelry sales are forecast to fall short of their levels from a year ago.
Silver's upward price potential is constrained by the possibility that mine production may grow gradually. The dollar exchange rate and the silver price should benefit from a shift in the Federal Reserve's aggressive interest rate strategy since gold's price would also rise. Industry experts predict a range between $17 and $25 per troy ounce.
A surplus is anticipated in the industrial platinum market. The primary sector is predicted to see a 10% growth in output in 2023. On the other hand, secondary supply is forecast to decrease. When the market for old automobiles stays strong due to the semiconductor crisis, the recovery of platinum from discarded automotive catalytic converters should also reduce.
Yet, as the number of PEM electrolyzer installations grows, the long-term need for platinum in the hydrogen economy will climb. Prices for platinum are predicted to fluctuate between $800 and $1,150 per troy ounce.
Experts on precious metals have doubts about palladium. After this year, the market should have a surplus to show. Although the recovery in light vehicle production will be offset by the loss in market share in combustion engines to battery-powered electric cars, demand in the automotive industry, which accounts for more than 80% of all manufacturing output, should remain stable.
Considering how much more expensive palladium is than platinum, the latter metal is quickly becoming the go-to alternative. The electrical, chemical and dentistry industries will all see a drop in demand.
Possible, albeit improbable, sanctions on Russia or its raw material exporters might cause price issues for palladium because 40% of global supply originates in the country. Analysts say the price might be anything from $1,300 to $2,250 per troy ounce.
According to analysts, the future of rhodium, which is likewise heavily reliant on demand from the automobile industry, is bleak. Since there won't be a major shift in global demand, next year's recovery of primary supply in South Africa should be enough to flip the market from a modest deficit this year into a surplus.
This new factor will add to the already highly high price burden. The secondary market supply is also anticipated to stay relatively high. In 2023, rhodium prices are predicted to fluctuate between $9,000 and $15,500 per troy ounce, a quite high range.
We anticipate that ruthenium's recent trend of declining prices will continue. According to market analysts, the price per troy ounce will be between $400 and $650. In 2023, there should be a modest excess of metal, mostly used in electronics. While supply may be constrained at the start of the year when South African inventories are processed, the situation should improve and prices should decline.
We expected iridium to reach rock bottom. PEM electrolyzers' growing use in the hydrogen sector bodes well for a modest increase in demand in 2023. In the years to come, this pattern ought to gain momentum. Nevertheless, South Africa's supply, which accounts for over 80% of the world's iridium supply, is only predicted to rise slightly.
There are, however, certain threats to output over the coming year. Ongoing power disruptions may hamper production in South Africa in 2019. This might accelerate the already strong upward momentum in the iridium market price. Estimates put the price of an ounce of iridium between $3,700 and $6,500.
In a nutshell, even if the price of various precious metals is vibrant compared to the dollar, they remain an attractive investment option. Investors will still have a chance to benefit from their historical trend of rising prices.
Investors should consider investing in at least one precious metal as long as there is a prospect that it might go up this year. Precious metals like gold and silver are not only attractive investments but also good choices for currency hedging. With a strong dollar, the market for precious metals is even more attractive. You can decide how much to invest in precious metals by checking our top-rated companies.
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