According to the Gold and Currency Information Network, the “FX Street” website examines the factors influencing the price of gold in a comprehensive article and writes about the prospect of the safe yellow metal in 2023:
Investing or not investing in gold depends on your financial goals, risk tolerance and trading strategy. However, many experts recommend allocating a portion of your portfolio to gold, as it is a tangible asset that retains its value over time and can always be considered a good and worthwhile investment. In addition, gold can act as a hedge against inflation and a safe haven in times of economic or political uncertainty.
If you’re considering adding gold to your portfolio, let’s take a look at what could affect gold prices in 2023:
Gold price analysis by looking at the price chart
As with many commodities, the price per ounce of gold reached its all-time high in the first quarter of 2022 with the onset of the crisis in Russia and Ukraine. However, gold prices fell from April to November, reaching a yearly low of around $1,617, bringing the price closer to April 2020 levels. Since then, prices have risen about 10 percent, and investors are wondering whether the yellow metal can reach the $2,000 level next year.
What causes the price of gold to fluctuate
A wide variety of factors may affect the price of gold, such as supply and demand, interest rates, the value of the US dollar, health and safety conditions, particularly with regard to Covid-19 in areas such as China, as well as political issues as well as geopolitical events, such as Crisis in Russia and Ukraine.
What causes the price of gold to fluctuate
Supply and demand are the two main and key forces that are responsible for determining the price of gold. Since gold is a limited resource, its price tends to rise in response to increased demand. For example, if the demand for jewelry or gold-backed investments increases, the price will naturally increase to meet this demand. On the other hand, if the supply increases or the demand for gold decreases, the probability that the price of gold will decrease is high.
Interest rate is another important variable that may affect the price of gold. The opportunity cost of holding gold decreases when interest rates are low, making gold a more attractive investment option.
A direct consequence of this is that it is likely to grow for gold, thereby increasing its price. On the other hand, when interest rates are high, gold has an opportunity to rise. This means that when interest rates are high, gold becomes less attractive as an investment, especially when there are safe investments in the field that have a yield, such as US government bonds. This may lead to a reduction in gold consumption, which in turn will smooth out its price decline.
In addition, the price of gold may be affected by political events. For example, if there is political instability or uncertainty in a major gold-producing region, it may cause investors to seek safe havens for their money, or it may disrupt gold production, which in turn may cause the price to rise. become gold Similarly, if a country with a significant amount of gold reserves announces that it will sell a significant percentage of that gold, the amount of gold available in the market may increase, which will lead to a decrease in the price of gold, and vice versa. This is also true.
Higher inflation and uncertainty about the global growth outlook could support (or increase) gold prices
At times when there is much uncertainty about the path of economic growth, or when financial markets are highly volatile, gold is often considered a safe haven asset. In addition to the above, this yellow metal is often the top choice as an investment vehicle against higher inflation – and not to mention that inflation has reached unwatchable levels in many countries in 2022!
Now the question is, why has gold performed poorly, even though inflation has already reached unprecedented levels? The obvious reason is that everything directly depends on the monetary policy applied in relation to the level of inflation.
The Federal Reserve intervened several times throughout 2022 in an effort to offset the significant increase in inflation. For this reason, the Federal Reserve has raised interest rates significantly, which makes government bonds (which are also considered safe assets) more attractive than gold.
What is certain is that bonds have yield, while gold does not offer any yield. On the other hand, when investors look for investments that are less risky, they turn away from gold and turn to bonds, which also affects the price of gold.
The price of gold is supported by the weakening of the US dollar
Looking back at last year’s outlook, it is clear that the US dollar is set to rise sharply in 2022 despite the Fed’s recent aggressive monetary policy stance. Obviously, higher interest rates are attractive to international investors looking for better investment opportunities. The return on an investment in dollars rises with the rate of inflation (when interest rates rise).
In addition, investing in dollars generates higher returns compared to investing in countries with lower interest rates. Because they bring more investors into the game, these investors buy more dollars to invest in, thus increasing demand and thus supporting the value of the dollar.
What price can we expect for gold in 2023?
Due to the many unknowns surrounding the future of inflation, monetary policies around the world and global GDP, it is likely that the price of gold will be subject to some volatility in 2023.
Gold prices may rise because of rising inflation or simply because of the acceptance of such high inflation in the medium to long term, especially if rate hikes are moderated or even stopped altogether. Demand for the yellow metal may also increase as the likelihood of a worldwide recession increases.
In addition to the mentioned cases, the changing attitude of policymakers towards global geopolitical conflicts (war economy mentality) may encourage them to prioritize gold reserves to support their reserves instead of maintaining foreign currency reserves.
