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Precious metals in 2023, cautiously optimistic

Mackenzie Carson, November 18, 2023

The price of gold depends mainly on its demand as an investment. In this sense, its opportunity cost is key, given that it does not generate income. This cost has increased significantly with the increase in the real interest of ten-year US Treasury bonds, which went from minus 1.1% in March 2022 to more than 1.7%, as these bonds have proven to be active safe and therefore, an alternative to gold. So gold looks relatively expensive. In any case, the real profitability – discounting inflation – at maturity of US debt may not increase much further in 2023 from current levels gold ira company.

In addition, the investment demand for gold also depends on the dollar exchange rate, inflation expectations and global uncertainties. In this regard, we estimate a devaluation of the dollar in 2023, which should provide support to the yellow metal. Furthermore, the high economic and geopolitical uncertainties favor it. On the other hand, declining inflation may erode the appeal of gold as a hedge against inflation. But inflation is at a relatively high level and its decline may result in a less restrictive monetary stance by the Federal Reserve, which favors the relative value of gold.

So gold, despite the fact that real rates in the US are now significantly less favorable than in previous years, can perform quite well against the dollar in 2023. In twelve months it can be around $1,880/ounce.

As for silver, it has performed well in recent months, but recently investors, through the futures market, have taken downward hedging positions against this precious metal. In addition, the stabilization of demand for ETFs is observed, although also strong imports from India, probably due to the accumulated demand after Covid-19. But it is not foreseeable that the demand for physical silver can maintain its recent pace. In fact, the slowdown in major economies is likely to exacerbate the downward pressure on its price. The fact is that silver relative to gold is already close to its long-term average. So we are cautious on silver in the short term. Of course, it can outperform gold in the event of improved industrial demand, especially with a global economic recovery in the latter part of 2023, as well as structural demand linked to the energy transition, which can provide long-term support. With this it can reach 25 dollars/ounce in twelve months .

For its part, platinum is still at the lowest price level in decades. Among other things, its supply/demand balance is likely to deteriorate in the coming years, due to the growing market share of electric vehicles in automobile sales. It must be taken into account that 85% of palladium demand comes from catalysts for internal combustion automobiles and the decrease in its share is a clear threat. Furthermore, although there are risks of supply interruptions from Russia, a large producer of this metal, there are currently no signs of a decrease in its production compared to previous years. Overall, the price of palladium appears high and its upside potential is limited in 2023.

Now, the demand for automatic catalysts represents slightly less than 40% of the demand for platinum, which has managed to perform better than palladium. Although the decrease in such demand is negative, the appearance of fuel cell electric vehicles can counteract it, since platinum is key in this technology. Still, it may take years for significant demand. Even so, platinum is used in jewelry and various industries. Indeed, its price is positively correlated with that of gold, as a substitute in jewelry, which makes it somewhat less volatile than palladium. In fact, platinum looks quite cheap and its outlook is significantly brighter than those of palladium. In twelve months it could reach $1,150/ounce while palladium could drop to $1,700/ounce.

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