The gold prices in 2022 have steadily declined 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 yellow metal surged through 2021 until it hit $1,936.30 on 24 February 2022, when Russia attacked Ukraine. It briefly dipped to $1,884.80 on 25 February, but the price quickly rebounded and resumed its advance.
The prices have been fluctuating ever since the 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 as a non-yielding asset. Unlike stocks and bonds, the return on gold is based entirely on price appreciation.
But the prices are rebounding. On Tuesday, gold prices jumped to their highest level in six months as optimism over China further easing Covid-19 restrictions weighed on the dollar.
Gold gained nearly $200 after falling to a more than two-year low in late September, as expectations about slower interest rate hikes from the US Fed dimmed the dollar's allure and lowered the opportunity cost of holding bullion, which pays no interest.
“Gold had a bumpy ride in 2022, like most other commodities, as Russia Ukraine war pushed the gold prices to near all-time highs in Q1, while broad dollar strength crushed the commodity to two-year lows in Q3. After touching a high of $2,078.8/ oz post-war, COMEX gold fell to a two-year low of $1,618.3/ oz, as the Federal Reserve took the fed funds rate to the highest since 2008. Domestic gold prices were more resilient, particularly due to the sharp depreciation in Rupee, which fell by more than 10 per cent year to date. On the MCX Gold tested a high of Rs 55,558 and a low of Rs 47,300 in the Q1, 2022. On the domestic front, MCX gold is up by around 14 per cent amid weak Indian Rupee against the US dollar,” said Ravindra V. Rao, CMT, EPAT VP-Head Commodity Research, Kotak Securities Ltd.
Silver’s price, on the other hand, after seeing a dull year saw a rebound in November after dropping below the psychological threshold of $24 per troy ounce to trade below $18 in late September.
This has largely been due to speculation about China loosening its current zero-Covid policy and market expectations of smaller US interest-rate hikes.
“After a shaky start to the year, silver went on to hit a high of near $27.5/oz in early March as a reaction to the onset of the Russia-Ukraine war, but failed to hold on to the gains and corrected to a 2-year low of $17.4/oz in September, said Rao of Kotak Securities.
“In international terms, gold is down just over 1 per cent whereas silver is up by 3 per cent year-to-date. In the domestic terms, due to rupee weakness, gold delivered only 14 per cent return while silver delivered 12.27 per cent year-to-date as of Wednesday. The year 2022 was an eventful year for both precious metals. After having a roller coaster ride, where we saw a multi-year high in gold and silver in the month of March, both precious metals pulled back from lows of $1630 & $17.30 respectively in September-22 before rebounding towards the $1800 & $24 level,” said Rahul Kalantri, Vice-President, Commodities, Mehta Equities Ltd.
Gold vs silver in 2022
Silver is a precious metal that has the most usage in the industrial sector and hence it gets affected by trends in both gold and industrial metals. The most significant factor that has kept silver prices in check is the lack of investor interest. In comparison, the yellow metal has had a mixed performance against other metals this year. It outperformed copper and palladium but lost the battle to silver and platinum.
“Since the beginning of 2022, ETF holdings have witnessed a net outflow of almost 10 per cent, as aggressive central bank rate hikes and a looming recession in the advanced economies roiled investor sentiments. Being an industrial metal, the deteriorating global economic outlook played a major headwind for silver. On the MCX Silver tested a high of Rs 73,078/kg and a low of Rs 51,857/kg. YTD COMEX Silver is mildly up by 2.49 per cent whereas on the domestic front MCX silver is up by around 11 per cent amid weak Indian Rupee against the US dollar,” said Rao of Kotak Securities.
What’s in store for gold and silver in 2023?
Analysts have said that central banks in major economies, including the US Federal Reserve and the European Central Bank (ECB), are set to continue their rate hikes at least until the first quarter of 2023 to curb inflation. In the near term, gold will likely remain reactive to real rates, driven by the speed at which global central banks tighten monetary policy in an effort to control inflation.
The recent stronger-than-expected US economic data released last Thursday was a wake-up call for traders and investors that the Federal Reserve is unlikely to stop tightening US monetary policy until well into 2023. The better gross domestic product report also suggested the U.S. economy is not ready to slip into recession.
Gold in the international market is expected to trade in a range of $1670-2000/oz with a positive bias in 2023. On the MCX Gold may trade in a range of Rs. 48,500-60,000/10 grams, as per experts.
“The year 2023 should see declining inflation, lower corporate profits, and periods of varying degrees of recession in the United States and Europe. The labour market should begin to suffer, causing the Fed to pivot when yields peak around 5-5.25 per cent after three additional interest rate hikes in February, March, and May. Historically, when the last rate hike was in place, the equity markets have already bottomed, and a new bull market rally begins over the next 12 months. Investors would start returning to natural resources, base metals, industrial metals, and precious metals in anticipation of better ROI,” said Rahul Kalantri, Vice-President, Commodities, Mehta Equities Ltd.
Demand for gold and silver
Most experts have opined that going forward the bullion could continue climbing in 2023 in case of a global economic slowdown and central banks’ hawkish monetary policies. This, alongside a further reopening in China, could boost gold by around 10 per cent to $2,000/oz.
The gold can even surpass its all-time high if stagflation continues to deteriorate and central banks hold back further policy tightening. This would likely force investors to steer clear of bonds, equities, and currencies altogether, just like in the 1970s.
“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 the 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. Investors should buy the dips as Fed tightening might cast a dark shadow until at least Q1 2023,” said Rao of Kotak Securities.
According to the Silver Institute, global silver demand is expected to reach a new high of 1.21 billion ounces in 2022, up by 16 per cent from 2021. The global silver market is forecasted to record a second consecutive deficit this year.
In the last 10 years the supply deficit for silver has been gradually widening but in 2022 it experienced a sudden spike in a deficit of over 300 per cent from 2021 leading to increased bullishness.
Besides, the demand for silver is expected to increase significantly due to its application in the circuits and interiors of electric vehicles.
“Going forward, China's reopening, Fed stance, and global growth are going to be the key drivers of the silver prices. The demand outlook for silver remains solid amid the global green energy push, boosting the industrial demand. Silver might trade in a range of $19/oz - 30/oz in 2023, with an upside bias. Silver on the MCX may trade in a range of 55,000-84,000/kg,” said Rao of Kotak Securities.
“The nearest resistance level for silver is placed near $24.50. If silver settles above this level, it will move towards the next resistance near $26 level and any close above this would head towards the next resistance level at $28.50. On the support side, silver will likely get strong support near the $22.50 level. In INR we might see silver sustain above Rs72,000 will head towards the Rs 78,400 and Rs 84,500 in the near to medium term,” said Kalantri of Mehta Equities Ltd.