Investments in gold and silver: what will happen to the prices of precious metals in 2023
Over the past few months, world prices for gold and
silver have been in a fever again. Only in the last 3 months, "gold"
quotes fell to $1620 and soared to $1815 per ounce, the price of silver over
the same period changed from $18.40 to $24 per ounce.
Given the specifics of the market, the following main
reasons for such fluctuations can be identified:
The ongoing race in interest rates of the ECB and the
US Federal Reserve against the backdrop of persistent inflationary problems in
Europe and the United States. The Fed is clearly outperforming its European
counterparts in terms of the effectiveness of the measures taken. This is
evidenced by the decline in inflation in the US in November to 7.1% year on
year against the backdrop of continuing alarming price dynamics in Europe.
Inflation in the EU in November fell from 10.6% in
October to 10% year on year. But given Europe's dependence on Russian gas
during the peak season, most economists predict that significant inflationary
processes in the EU countries will continue at least until March-April 2023, or
even until early 2024.
This is pushing regulators to further raise rates.
Their increase cools the economy and consumer demand in America and the EU and
works against gold and silver, pumping the resources of investors and
speculators from the precious metals market into instruments with growing
yields in the dollar and euro.
Increase in geopolitical and military tension in the
world. This traditionally, on the contrary, plays in favor of increasing the
quotes of gold and, to some extent, silver. Firstly, conservative investors
tend to go into gold in any cataclysms. Secondly, the industrial consumption of
gold and silver is growing: these precious metals are actively used in many
military technologies and during the period of an active arms race, the demand
for them grows accordingly. Rising demand is pushing prices up for both gold
and silver.
Changes in the structure of demand for gold and silver
in China, India and other countries that are the main consumers of these metals
for the jewelry industry. Currently, the demand from the jewelry industry is
growing again. This is facilitated by the gradual restoration of the solvency
of citizens of China and India, which, taking into account the population of
these countries, significantly affects the increase in prices for these
precious metals. The richer part of the population of these countries prefers
gold jewelry and coins, the less wealthy is limited to silver. As a result, the
demand for both metals is growing.
Added to this is the increased interest in gold
jewelry in the Arab countries, which have significantly increased their income
against the backdrop of a global rise in energy prices. The cumulative growth
in demand is a significant support for the trend towards a gradual rise in the
price of precious metals with an investment horizon of 3-5 years.
The increase in reserves in gold by the central banks
of most countries of the world against the background of the growing threat of
a global recession, combined with significant volatility in the stock and
currency markets. Most of the world's largest financial players now prefer to
increase their positions in gold. Changes in bank capital requirements and
diversification of their assets by regulators also played their role. But this
is about gold. Silver in this situation is not considered by them as a serious
asset, which distinguishes these metals as financial instruments from the point
of view of banks and the public.
For banks, silver is just one of the metals to make
money from bullion and coin trading. Gold is seen by them as a kind of
liquidity safety cushion in the rapidly changing financial world.
For the population, the main factors when choosing
investments in gold or silver are two factors: the amount of financial
opportunities of specific citizens and aesthetics. As a result, private
investors more often choose not more expensive gold jewelry, but more
interesting (unique) but also cheaper silver jewelry.
This, by the way, gives rise to a new trend in the
jewelry industry, when a product can combine, for example, diamonds and
diamonds with a silver frame or a combination of silver and gold components in
one piece of jewelry, plus precious stones of the highest cut and purity.
"Black" and "gray" market of precious
metals. In addition to objective economic reasons, the precious metals market
will soon be affected by the ban of many European countries and the United
States on the import of Russian gold, as a sanction for the Russian invasion of
Ukraine.
Forecast for gold
and silver prices in the first quarter of 2023
Given the growth of geopolitical and military tensions in
the world, gold quotes will remain volatile until the end of the first quarter
of 2023 without observing a certain cyclicality. The main jumps in gold prices
will occur during periods when new decisions of the US Federal Reserve on
interest rates are published, as well as at times of peak tensions in the
Russian war against Ukraine, events around Taiwan, as well as increased
problems in relations between NATO-Russia, the US-China, the US - Iran and USA
- Russia.
Due to the high volatility of gold prices, when its
quotes sink to the “bottom” levels (according to my calculations, from $1620 to
$1680), the central banks of the developed countries of the world will actively
replenish their gold reserves, which will provide additional support for gold
on the world market. Russia's attempts to sell its bullion on world markets
through third countries, bypassing sanctions, will play against a very
significant increase in gold prices.
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