Inflation and Interest Rates

Inflation and interest rates are, of course, linked to the strength of the dollar. In many countries, inflation has stayed high throughout 2022. While the latest figure from the US put CPI at 8.3% year-on-year, the UK is forecast to reach 11% by the end of the year.

In an effort to reduce inflation, central banks including the Fed, ECB, and BoE have already raised interest rates, but with limited impact so far.

As long as inflation is strong, rates will keep rising. Although high inflation is typically seen as a plus for gold as a hedge against inflation, high interest rates are generally seen as a negative for gold as a non-yielding asset.

These two forces are currently acting against gold; interest rates are driving down its price while inflation keeps prices high.

The direction central banks take will then have an impact on the price of gold in 2023. The price of gold could decrease more if rates continue to rise and inflation declines. However, if inflation remains fixed, this should still offset the negative impact of high interest rates.

Geopolitical Concerns

A major geopolitical shock occurred in 2022 as a result of Russia’s invasion of Ukraine. The sanctions imposed on Russia have put additional pressure on the world economy, particularly as a result of the skyrocketing energy prices. Europe is expected to face a difficult winter or energy rationing, further damaging any industrial output from key countries like Germany.

The conflict has dragged on for several months, and there seems to be no conclusion in sight. There have also been concerns over any further escalation, which could spill beyond economic sanctions into a more serious war.

The invasion had a significant impact on the price of gold earlier in 2022 and will surely have a significant impact on the price of gold in 2023.

Beyond Russia, China continues to be a significant geopolitical concern for the entire world.

With growing rhetoric in the country escalating in recent months, there are worries about China taking military action over Taiwan, and the reaction of countries like the US to this. Investors will therefore undoubtedly be keeping a close eye out for any potential conflict in both Ukraine and Taiwan, and how it might affect the price of gold in 2023.

Gold price predictions

Despite a wide range, the majority of the gold price 2023 predictions suggest a similar price range to 2022.

The dollar’s strength is mentioned as one of the main drivers in many forecasts.

They anticipate that the dollar will hold its ground or strengthen further in the first half of 2023, before slowing growth results in interest rates peaking or being lowered.

This weakening of the dollar will support a rise in gold prices in the remaining months of the year.

Due to the uncertain nature of the concerns about Russia or China, which might, of course, have a significant impact on the price of gold in either direction, most forecasts for 2023 fail to mention them.

It remains to be seen then how accurate these gold price forecasts will be, but the new year is positively set to be another interesting one for investors.

Stefan Nolte is Director of Liemeta ME Ltd, a provider of physical storage of precious metals at its prime location in Liechtenstein as well as trade services of precious metals, mainly gold, silver, platinum, and palladium