Despite such factors as high interest rates and a strong US Dollar pressuring gold and silver prices lower, geopolitical uncertainties in combination with the much-expected recession may keep the precious metals in a favored position as investors are seeking safety. In addition, central banks worldwide are increasing their gold reserves to diversify away from the US Dollar as the key foreign exchange reserve currency. Both reasons kept the demand for gold high in 2022 and possibly would continue the trend in 2023. Furthermore, the possible weakening of the US Dollar due to a potential recession and therefore lowered interest rates could support higher gold prices, which may have the potential to appreciate to 1900 USD. On the flip side, gold prices may suffer in case of a “soft landing” and higher interest rates.
Silver may experience technical resistance to overcome the 25 USD price level, which coincides with a long-term downward trendline. Increased expected worldwide production exceeding 1 billion ounces may also put additional pressure on the price of silver in 2023.
Demand for precious metals may remain strong, driven by the central banks’ accumulation of gold reserves similar to other investors, such as investment funds. The industry may experience a boost in gold demand, especially as China continues to accelerate its manufacturing.
If we take a look at the jewelry industry as a consumer discretionary and luxury product, it may suffer from lowered demand amid fears of a recession in the following months. Lowered demand by the consumers combined with relatively high gold prices may result in lower gold demand from the jewelers.
The valuation of mining companies is highly correlated with the price of precious metals. Based on the view that gold prices might remain stable or upward trending, gold mining companies may experience reasonable growth in 2023. Meanwhile, based on the opinion that silver prices may face a more turbulent year, silver mining companies’ valuation may react accordingly. It is expected that new silver mining projects would commence operations in such countries as Chile, Mexico, and Ecuador. In case these projects turn out to be successful, these companies may experience a boost in their valuations due to future earnings growth prospects.
Meanwhile, it is also important to evaluate the company not only from the perspective of the precious metal it is mining, but also from its management, balance sheet and future growth point of view, especially during turbulent market and high interest rate conditions for such capital-intensive business as precious metal mining. These aspects need to be evaluated at a micro level for each company separately.
