“We anticipate [gold and silver] prices will rise from $1,630 and $18 an ounce today to $1,700 and $19.5 by the end of 2023,” said Capital Economics commodities economist Edward Gardner.
The Fed has confused markets with its mixed messages after a fourth hike of 75 basis points on Wednesday. In its statement, the US central bank said it would now review “the cumulative tightening” of monetary policy and “the lags with which monetary policy” affects economic activity and inflation.
At the same time, Powell followed that with comments that the “absolute level” of interest rates would likely be higher than previously thought, while also saying the window for a soft landing has “narrowed.”
However, Capital Economics is not convinced the Fed can remain hawkish for much longer.
“Gold and silver prices fell after President Powell’s hawkish comments yesterday. But if we’re right in believing that US interest rates won’t rise as much as markets expect, gold and silver prices will rise next year.” Gardner said Thursday. “Gold and silver prices initially rose after the Federal Reserve’s decision to raise its policy rate by 75 basis points yesterday. In short, investors decided to be risky.”
Additionally, the US dollar, which has been a major drag on the precious metal, will peak next year and begin to retreat, helping gold recover.
“A stronger dollar makes it more expensive to buy gold and silver in non-U.S. dollars. If we’re right and the slowdown in global economic growth hits about the middle of next year, then we think improved risk appetite will lead to a weaker dollar.” , Gardner wrote.
And the final piece that will boost prices will be demand for gold, which will be strong, especially when it comes to central bank purchases, Gardner added. “Central banks bought 673 tonnes of gold in the first nine months of this year, a multi-decade high for January to September,” he said.
This week, the World Gold Council released its gold demand trends report, revealing that gold purchases by central banks hit a record in the last quarter. And the market is expected to continue due to geopolitical tensions.
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