After facing a highly volatile year in 2022, gold prices may touch their all-time high mark of Rs 62,000 in 2023. A recent report by ICICIdirect said that gold prices are likely to rise mainly on the back of weakness in the dollar as the US Fed is likely to pause on rate hikes early next year and may even cut rates in Q4 2023.
“Due to the IMF's revised global GDP prediction, reducing inflation, the halt in interest rate hikes, the weakening dollar, and China's reopening, the global commodities market is anticipated to exhibit a mixed trend in 2023 and the global economy is currently experiencing a slowdown. This is likely to have a mixed effect on the commodities market,” ICICIdirect report said.
Global gold prices in 2022 have steadily declined in prices despite rising inflation and geopolitical crisis. After hitting the all-time high point of above $2,000 an ounce in March 2022, gold prices have constantly struggled.
The prices have been fluctuating ever since US Fed started its hawkish interest rate hikes. The Fed first revised its benchmark interest rate by 25 basis points (bps) on March 16, hiking the rate from 0.25 per cent to 0.50 per cent. This was the Fed’s first interest rate increase since 2018. This was followed by monetary tightening by central banks around the world.
Since then, gold prices have fluctuated globally amid the ever-rising US dollar and surging bond yields. In general, the rising rate of the US dollar and bonds is a distraction for gold investors as it is considered a non-yielding asset.
| Commodity | Current price | YTD % change | ICICIdirect target for FY23 | % change |
| Gold (₹/ 10 gms) | 54,730 | 13.79 | 62,000 | 13.28 |
| Silver(₹/ kg) | 68,870 | 9.91 | 80,000 | 16.16 |
In 2023, experts feel the investment demand is likely to gain pace as investors will buy gold as store value amid rising fears of recession. In 2022, global central banks purchased more than 400 tonnes of gold in Q322, the largest single quarter of demand last few years. Looking at the current situation and recession fears, the central bank will continue to add gold to its reserves, the ICICIdirect report added.
“Gold might finally get the recession it needed to glitter in 2023. Of the 7 US recessions since 1973, gold performed well during five. World Gold Council research has shown that yellow metal has been a top performer among asset classes during periods of stagflation. A period of stagflation is a reasonable scenario for 1H23, though regional differences exist. Together, with a looming recession, reasonably higher inflation, a falling dollar, and a highly uncertain geo-political situation, gold is expected to perform well in 2023,” said Ravindra V. Rao, CMT, EPAT VP-Head Commodity Research, Kotak Securities Ltd.
Other metals
As per the report, base metal prices in 2022 experienced a roller-coaster ride due to uneven global economic growth and China's limited trade participation. A deficit in the global base metals market is anticipated in 2023 as a result of supply restrictions from significant manufacturers.
“Due to the weaker dollar, potential growth in Chinese consumption, and declining inventories, the base metals market is anticipated to demonstrate positive momentum in 2023,” noted the ICICIdirect report.
For silver, the ICICIdirect report said the white metal prices are likely to move higher outperforming gold as the silver market is likely to remain in deficit for a second consecutive year.
"Moderating inflation in the US will provide room for the Fed to unwind tighter monetary policy putting downside pressure on yields. Demand in the industrial sector is likely to grow amid electrification of vehicles, 5G technology, and commitment to green infrastructure," the report noted.