In 2023, gold reached an unprecedented high, with silver following its ascent. Experts see no major obstacles to gold’s continued upward trend in the next year.
Gold and the US dollar typically move inversely to each other, a pattern which held in 2023. Gold’s price dipped when US interest rates rose as part of the Federal Reserve’s efforts to control inflation, boosting the dollar. However, as market expectations shifted towards lower consumer prices and interest rates, the dollar weakened and gold reached new heights.
Unexpectedly, there was substantial gold purchasing by central banks in emerging countries. Russia and China, amid deteriorating relations with the US, were prominent buyers. Other nations also increased their gold reserves, possibly due to concerns over potential sanctions.
AJ Bell’s Laith Khalaf commented that gold had a positive year with significant dollar returns. However, due to the dollar’s weakness, returns in sterling for UK investors were about half that of dollar returns. Khalaf highlighted that interest rate policies are crucial in determining gold prices, with the prospect of falling rates, particularly in the US, benefiting gold as they reduce the opportunity cost of holding the metal.
Khalaf also cautioned that gold is not always a reliable safety net, citing a significant drop in its price from its 1980 peak and a long recovery period.
The World Gold Council (WGC) was more optimistic, emphasizing the role of geopolitical risks in boosting gold’s performance in 2023. It cited events like the SVB bank failure and the Israel/Hamas conflict as contributing factors. The WGC expects continued central bank buying to support gold prices, and even in the face of potential recessions, gold is seen as a strategic asset in portfolios.
Deutsche Bank analysts are upbeat about gold’s prospects, anticipating a rise in prices as the US Federal Reserve is expected to start reducing interest rates in mid-2024, and central bank purchases continue. They predict gold could reach an average of $2,150/oz, potentially exceeding $2,200/oz.
Silver, often overshadowed by gold, has also seen an uptick, rising 17% since October to $24.35 an ounce. Deutsche Bank forecasts further increases for silver, attributing this to growing demand in the photovoltaic sector and electronics industry, leading to a continued undersupply in the market.
