Will Gold Gain Only 3.3% in 2023?

According to the LBMA annual forecast survey, the average gold price in 2023 will be $1,860, just 3.3% higher than in 2022. Is this outlook justified?

The 2023 LBMA Annual Precious Metals Forecast Survey is out! Analysts are generally cautiously bullish on gold prices. They forecast them on average to be $1,859.9 in 2023, which means only a 3.3% change compared to $1,800.09, the 2022 average price. The biggest optimist sees the average price of gold at $2,025, while the most bearish forecast expects the average to be $1,594.

Gold Will Be Driven by the Fed and the Dollar in 2023

The forecasters were also asked to identify their top three drivers for the price of gold in 2023. Some 43% of analysts declared the US dollar and the Fed’s monetary policy as the top factor this year (inflation was second, while geopolitics third). They point out that the macroeconomic backdrop should be gold-friendly in 2023. This is because disinflation and recession worries will lead to a peak in the greenback and bond yields, as well as the end of the Fed’s tightening cycle. The recessionary or even stagflationary environment is believed to bode well for gold’s traditional safe haven and portfolio diversification role. The peak in the interest rates should weaken the U.S dollar and support the euro and gold.

As always, there are also some downside risks. The main is that the Fed’s pivot won’t materialize as the markets expect, which could hurt gold prices. If inflation slows down further, but the Fed won’t cut rates, the real interest rates will increase, additionally hitting the yellow metal. Another risk mentioned by the analysts is that if the stock market rallies this year, there might be limited room for gold to go up.

Implications for Gold

What does it all mean for the gold (and silver) outlook for 2023? Personally, I’m closer to the optimistic view rather than to the pessimistic one. After all, the Fed’s tightening cycle, which was the greatest headwind for gold in 2022, is going to end soon. And there should emerge a strong tailwind, i.e., recessionary worries, as the Fed’s interest rate hikes and recession were historically linked casually.

I acknowledge the downside risks, but I believe that there are limited reasons to push gold prices much lower. Even if the Fed doesn’t cut rates this year, the replay of the taper tantrum of 2013 seems unlikely.

Having said that, there might be a lot of volatility in the gold market this year, as well as some corrections along the way. The chart above shows a big drop in the price of gold, below $1,900, that happened on February 3, 2023 as the strong nonfarm payrolls strengthen the expectations of a more hawkish Fed and interest rates higher for longer. However, the overall bullish outlook remains intact despite the recent slide.

Arkadiusz Sieron, PhD