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(Kitco News) – The gold price environment will be challenging next year as the Federal Reserve is expected to continue raising interest rates through 2023, the World Bank said in its latest forecast. raw material prices.
The international financial institution said in its updated forecast, released Thursday, that it expects gold prices to fall another 4% next year. This comes after noting that gold prices fell 8% in the third quarter.
“Rising interest rates and the appreciation of the US dollar outweighed concerns about rising inflation and geopolitical risks,” the analysts said in the report. “The U.S. Federal Reserve has raised policy rates five times this year by a combined 3 percentage points, leading the U.S. dollar index to rise 16% to a 20-year high. Meanwhile, the yield of 10-year Treasury Inflation-Protected Securities (TIPS) rose to its highest level since February 2011, raising the opportunity cost of investing in zero-return assets.”
The latest price projection is mixed compared to the World Bank forecast in April. The bank expected gold prices to rise slightly in 2022 and then fall 10% next year.
The updated outlook comes as gold prices continue to hold long-term support at around $1,650 an ounce. Another 4% drop in price would push the price of gold to $1,600 per ounce.
The report notes that investment demand for gold continues to have the biggest impact on market prices. For five consecutive months, investors have been liquidating their positions in gold-backed global exchange-traded funds.
At the same time, the report notes that lower gold prices have helped support physical demand; however, this will not have much impact on prices.
“Physical purchases are unlikely to be enough to offset the monetary headwinds facing investment demand. As interest rate hikes are expected to continue into next year, oil prices gold are expected to fall 4% in 2023,” the report said.
Turning to silver, the report said prices fell 15% in the third quarter, underperforming gold as recession fears weigh on expectations for industrial demand for the metal.
“Although photovoltaic demand continues to grow, demand for consumer electronics has weakened significantly, with global electronics production falling for the fifth consecutive month in September,” the report said. “Dull physical and investment demand should keep silver prices under downward pressure. Silver prices are expected to fall 16% in 2022 and remain weak in 2023.”
However, in the long term, the bank remains optimistic about the recovery in silver prices.
“Silver should benefit from the energy transition, especially for its use in photovoltaic solar cells,” the analysts said.
Turning to the broader commodities index, analysts warn of continued volatility as market focus shifts between a looming global recession and an imbalance in supply and demand fundamentals .
“As the global growth slowdown intensifies, commodity prices are expected to fall over the next two years, but will remain significantly above their five-year average,” the report said. “Prices will likely remain volatile as the energy transition unfolds and demand shifts from fossil fuels to renewables, which will benefit some metal producers.”
As for energy prices, the World Bank expects an 11% drop in 2023 after a 60% rise in 2022.
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