Gold price to fall to $1,650 by year-end, but recovery to come in 2023, says Capital Economics

Gold price to fall to $1,650 by year-end, but recovery to come in 2023, says Capital Economics

(Kitco News) Despite this week’s gains, gold is still likely to fall to $1,650 by the end of the year before recovering, according to Capital Economics’ latest forecast.

“After a sharp decline in Q2, we think the price of gold is now near a cyclical low. What’s more, the price should recover a bit in 2023 as markets factor in the prospect of US monetary tightening,” the chief economist said Capital Economics for Commodities Caroline Bain.

Since hitting a peak in March when gold traded above $2,000 an ounce, the precious metal has been in retreat, down 11%. The decline was driven by a stronger US dollar and the Federal Reserve’s aggressive fight against inflation through outsized interest rate hikes.

“The price of gold is down 11% from its recent high in March. Much of the decline can be placed firmly at the feet of the strengthening dollar. After all, the price of gold in other major currencies has held up much better. Rising Real yields on US Treasuries also played a role.” Bain said Wednesday.

This week, gold stabilized after falling to $1,700 an ounce, with prices even trying to climb back to $1,800. At the time of writing, December Comex gold futures were at $1,781.90, down 0.44% on the day.

“Slower economic growth and a drop in non-energy commodity prices point to less tightening of US monetary policy than investors had expected. In recent weeks, 10-year yields fell, US stocks rose and the dollar weakened.” ” Bain pointed out.

Capital Economics predicted a fall in gold prices from March, citing a strong outlook for the US dollar offsetting benefits from additional safe-haven flows triggered by the war in Ukraine.

“We recently revised our forecasts for US markets. We now expect the 10-year Treasury yield to rise slightly to around 3% at the end of 2022 (previously 4%) and to 2.75% at the end of 2023, indicating higher real also earnings expectations,” Bain added. “Meanwhile, we continue to forecast the US dollar to strengthen a bit from here as we think the US economy will hold up better than other advanced economies in Europe and Asia and that interest rate differentials will continue to favor dollar. “

Because of this macro outlook, the forecast for gold for the rest of 2022 is still largely negative. But that picture will change in 2023, Bain pointed out.

“There is still huge uncertainty about the outlook for the global economy and the impact of the war in Ukraine… But for now, we expect another small drop in the price of gold to $1,650 an ounce by the end of 2022 before prices start to rise. again in 2023,” she said.

Live 24 hour gold chart [Kitco Inc.]

In the short term, Indian demand for jewelery could weaken due to the increase in import duty from 7.5% to 12.5% ​​and the depreciation of the rupee, which would weigh on prices. On the other hand, physical demand from China is expected to pick up, while demand from the Middle East is likely to remain strong in light of higher global oil prices.

“We expect demand for gold jewelry to be essentially flat in volume terms from 2021,” Bain said. “Jewellery demand was subdued in 1H 2022, down 2% year-on-year, according to the World Gold Council. A sharp decline in sales in China due to virus-related lockdowns (which should prove temporary) was offset by strong buying in India due to the wedding season and festivals. The price drop since April is also likely to have acted as an incentive in the price-sensitive Indian market.”

ETF holdings are expected to continue to decline, but remain near historically high levels, which will also weigh on the price of gold.

On the plus side, central banks continue to add gold to their reserves, especially Turkey and Egypt. “This will be enough to offset the drag on the gold price due to rising US yields, an appreciating dollar, ETF outflows and limited demand for gems,” Bain noted.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect those of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor can the author guarantee such accuracy. This article is for informational purposes only. This is not an invitation to make any exchange for commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept responsibility for loss and/or damage arising from the use of this publication.

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