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.
According to our forecast, by the end of the first quarter of 2023, the corridor for gold prices will be in the range from $1620 to $1890 per ounce, and for silver - from $21.10 to $24.90 per troy ounce.