Capital Economics' latest forecast says that despite the fact that in response to the hawkish stance of Federal Reserve Chairman Jerome Powell, gold prices have declined, prices will rise next year.
"We forecast [gold and silver] prices to rise from $1,630 and $18 per ounce today to $1,700 and $19.5 by end 2023," said Edward Gardner, commodities economist at Capital Economics.
On Wednesday, after the fourth rate hike by 75 basis points, the Fed confused the markets with its mixed messages. The US central bank has said it will now consider a "cumulative tightening" of monetary policy and a "slowdown" of monetary policy.
At the same time, Powell followed up with comments that the "ultimate level" of interest rates is likely to be higher than previously thought and said that the window for a soft landing is "narrowing."
However, Capital Economics is not convinced that the Fed can stay hawkish for long.
"Gold and silver prices fell following Chair Powell's hawkish comments yesterday. But if we are right in thinking U.S. rates won't rise by as much as markets expect, gold and silver prices should increase next year," Gardner said Thursday. "Gold and silver prices initially rose following the Federal Reserve's decision to raise its policy rate by 75 basis points yesterday. Briefly, investors took the decision to be dovish."
In addition, the US dollar, which has been a big drag on the precious metal, will peak next year and begin to decline, helping gold recover.
"A stronger dollar makes purchasing gold and silver priced in dollars outside of the U.S. more expensive. If we are right and the slowdown in global economic growth will trough at around the middle of next year, then we think improved risk appetite will then lead to a weaker dollar," Gardner wrote.
And the final element that will lift prices will be demand for gold, which will be sustainable, especially when it comes to central bank purchases, Gardner added. "Central banks purchased 673 tonnes of gold in the first nine months of this year, a multi-decade high for January to September," he said.
This week, the World Gold Council released its Gold Demand Trends report, which says that gold purchases by central banks hit a record high in the latest quarter. Buying is expected to continue due to geopolitical tensions.
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