According to two market analysts, gold prices start the year with a 5% rally, while continued weakness in the US dollar will provide further support for gold prices in 2023. Technical analyst Avi Gilburt makes a record forecast for gold prices.
Where does the bullish outlook for gold originate from?
Portfolio manager and strategist Joe Foster and VanEck deputy portfolio manager Imaru Casanova said in their 2023 outlook released last week that there are several reasons why the dollar has peaked as prices fell nearly 10.5% in September after hitting a 20-year high. The bullish outlook comes with gold prices making solid gains above $1,900 and the US dollar index trading around 102.17 points.
“We expect the US dollar to weaken further if a recession develops,” the strategists write in the report. Two key reasons two analysts expect to see weak economic activity in the new year are the steep inverted yield curve and the effects of the Federal Reserve’s aggressive monetary policy action. In this context, analysts make the following assessment:
Just nine months of tightening financial conditions led to the housing market crash, a crash in cryptocurrencies, a derivatives fiasco for British pension funds, and the crash of a major cryptocurrency exchange. What tail risks will the next nine months bring, as a slowing economy is likely to add to the mix?
“2023 will bring a refocus on yellow metal”
VanEck also sees heightened geopolitical uncertainty over the US dollar as its role as the world’s reserve currency continues to be tarnished. “Since Western sanctions have frozen more than half of Russia’s $500 billion foreign currency reserves, there has been a growing reluctance to rely on the US dollar for foreign exchange reserves and trade,” Foster and Casanova write. Also, they add the following comment:
Many countries see no guarantee that the United States will not use the US dollar to retaliate for some future violation that is less dire than bombing a neighbor. As this new world order evolves, there may be less demand for US treasuries, which allows the US to maintain its deficit lifestyle.
Alongside the weakness in the US dollar, VanEck expects the continued threat of inflation to make gold an attractive hedge to protect wealth. Analysts say the Fed is unlikely to get inflation under control. They note that the government’s increased debt has become a major expense, with a national debt of $31.3 trillion equaling 124% of GDP. Foster and Casanova add that they expect robust commodity demand to support rising inflation, even in the face of recession.
While gold has ample potential in 2023, VanEck says the key to higher prices is renewed investor demand. Global bullion ETFs experienced heavy outflows from April to November. Analysts note that the exits have now stalled and while a stronger catalyst is likely to be needed to accelerate the entry, at least the selling pressure has eased. “Maybe 2023 will bring a refocus on yellow metal,” they say.
Record forecast for gold prices: $2,428
Technical analyst Avi Gilburt makes the following assessments for gold prices. For those who don’t remember the volatility we experienced in the metal market in the summer of 2011, the market was following a parabolic course at that time, with increases of $ 50 on some days. And at the time, the only debate was about how far gold would get us beyond $2,000. That doesn’t even take into account all those who have been seeking $5,000 gold for decades, some argue it will be an ‘overnight gap’.
As we now know, gold hit $1,921 and started a 4-year decline until it bottomed out to $1,050… Now, for those who believe that ‘manipulation’ was the only reason metals peaked in 2011, I hope you don’t hate me if I suggest you take off your blinders… I used gold’s over 100 years of structure to determine gold’s highest target. And I used the same structure to set a bottom target for the fix I was expecting, even before this fix started. Now I’m going to give you my next target on the upside and that’s $2,428.
I will monitor the structure of the upcoming rally to make sure there are no unforeseen surprises that could cause us to change our expectations. Also, this upside target considers larger than standard extensions, the type of which is commonly seen in metal complex. However, if we hit a ‘ridiculous pace’ during one of these stretches, we can easily see momentum getting us up to $2,745. But for now, I think the $2,428 target is the most reasonable and will be my first focus. I anticipate that in the next 12 months we will have more information to make our goal a much higher level of confidence.
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