Gold Prices Hit a High in More Than a Year: Analysts Weigh In on Future Growth and Silver Prices

Gold prices hit a high in more than a year. Analysts told whether further growth to levels above the historical maximum is possible, and what will happen to silver prices

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The price of gold futures settled in June on the New York COMEX on April 13 rose to $2,063 per ounce for the first time since March 2022. Quotes of the precious metal are approaching the historical record, which was set in August 2020 at $2,075 per ounce. Analysts told RBC Investments what will happen to the prices of gold and silver and how long the growth of quotations can continue.

What keeps the price of precious metals going up?

1. Fed policy and dollar weakness

In 2023, gold prices show high volatility, which depends on the dynamics of the dollar index and the yields of US government bonds, that is, on the mood that the US Federal Reserve broadcasts, Andrey Maslov, an analyst at FG Finam, said. He stressed that even against the backdrop of the highest rates in recent decades, the price of gold is not declining.

For gold, there are now more factors for a moderate and cautious increase in quotes: the latest inflation data was not strong enough for a likely further increase in the Fed rate above the expected 25 bp. at the next meeting, but not low enough for interest in gold to fall, Alexander Fetisov, head of the analytical department of the department for work in the capital markets of Rosselkhozbank, confirmed.

Alexei Golovinov, chief analyst at PSB, noted that as the cycle of tightening monetary policy in the United States ends, gold prices should rise. The aggravation of the crisis in US banks may also increase the demand for defensive assets, which will accelerate the growth in the price of gold.

“Moreover, according to the minutes of the March meeting, the Fed admitted that the crisis in regional banks will lead to a “soft” recession in the second half of this year. A recession, even a mild one, should have a positive effect on gold quotes,” Fetisov added.

2. Central bank holdings

Precious metals prices are also supported by central banks, which in 2022 increased gold reserves at a record pace and continue this trend in 2023, Andrey Maslov said. “However, demand for the precious metal from central banks may be more moderate than last year, given the overall reduction in reserves,” the analyst added.

Freedom Finance Global analyst Vitaly Kononov recalled that in 2022, central banks more than doubled their purchases of gold compared to the previous year, and in 2023 they purchased 51.7 tons of gold in February and 73.7 tons in January. “Most likely, the activity of central banks will remain one of the most important sources of demand during the second and third quarters of 2023,” Kononov added.

3. Exchange-traded mutual funds

“Gold-backed ETFs increased their holdings by 32 tons in March (after declining 34 tons in February), the first positive inflow in 11 months, according to the WGC. We view the ETF as one of the main drivers of gold and, along with net buying by the CBR, strong growth in demand for physical gold in Q4 2022, and deteriorating macro conditions, this strong data is supporting the price of the precious metal in the near term.” said Vitaly Kononov, an analyst at Freedom Finance Global.

4. The state of the economy and the strategies of producers

Silver as an industrial metal is now reacting to the expectation of weak growth in the global economy in 2023 amid strong growth in rates, Andrey Maslov, an analyst at FG Finam, said. However, the retail and jewelry market has shown solid demand for silver over the past year, and low prices will encourage buying from key consumers such as China and India, the analyst added.

“Compared to silver, gold has risen over the past few months in the run-up to the banking crisis, prompting investors to buy it as a hedge. However, silver seems to us a more attractive tool, since its growth can be driven not only by economic factors, but also by industrial demand,” agrees Vitaly Kononov from Freedom Finance Global. Thus, the recovery of China’s industry after the lockdown can provide support for silver prices.

“Among other things, producers, according to the latest data, have the largest number of long silver positions in the last 10 years,” Kononov added. An analyst at Freedom Finance Global also pointed out that gold production costs range from $800 to $1,300 per ounce, allowing gold mining companies to earn huge profits at current price levels.

“Many manufacturers are hedging at $1,900, which allows them to earn EBITDA of 30-50% of revenue. Moreover, in recent years, a supply surplus has formed on the market, exceeding demand by about 3%, which also confirms our “bearish” thesis. In general, we see the long-term fair price at $1,800 per ounce,” Kononov said.

Analyst forecasts for gold prices

• Rosselkhozbank, Head of the Analytical Department of the Capital Markets Department Alexander Fetisov: “Factors of a purely economic nature are not enough to seriously exceed the highs of $ 2070-2076, this requires investors to switch to risk-off mode (risk flight – approx. RBC Investments) . We are leaning towards the scenario of moderate gold dynamics within $2070. In the short term, in order to continue growing, quotes need to gain a foothold above $2040-2045”;
• FG “Finam”, analyst Andrei Maslov: “In the second quarter, gold will be traded in the range of $1820-1970 per ounce, and until the end of the year the precious metal may show moderate growth, and prices will remain within $1800-2050 per ounce”;
• PSB, Chief Analyst Alexey Golovinov: “We expect that gold prices will reach $2,300 during the current year, but by December they will fall to the current levels – about $2,050 per ounce. Our forecast for gold prices in the short term is $2000-2080 per ounce. We assume that before the summer, gold prices will go beyond the upper limit of our target range.”

How much will silver cost

• Rosselkhozbankhead of the analytical department of the capital markets department Alexander Fetisov: “For silver, the level of $26-27 per ounce will be a significant level of resistance”;
• PSB, Chief Analyst Alexei Golovinov: “The cost of silver in the near future will fluctuate between $25 and $26.5 per ounce. By the summer, prices per ounce of silver will overcome the $28 mark. By the end of the year for silver, we forecast an increase in quotations to $32 per ounce with a rollback to $30”;
• FG “Finam”, Analyst Andrey Maslov: “We expect silver quotes to remain in the range of $20-25 per ounce. We believe that during 2023, silver quotes may rise to the $28 per ounce area due to the fact that the Fed and other central banks may start cutting rates towards the end of the year. Therefore, the expected trading range at the end of the year is $21-28”;
• Freedom Finance Globalanalyst Vitaly Kononov: “We expect silver prices to rise to $26-27 per ounce by the end of the year.”

Will gold and silver prices adjust?

“We do not see a significant upside in quotes and recommend fixing positions in gold. It is worth noting that the positioning of investors in gold has changed in recent weeks, as the number of net speculative positions in gold futures has increased by 20 thousand contracts due to closing shorts and opening longs,” Vitaly Kononov, an analyst at Freedom Finance Global, warned.

However, he noted that the number of call options on the Gold Trust ETF has quadrupled, indicating increased interest in speculative buying from retail investors. “These levels look unstable due to unusually high volatility,” the analyst said.

“Silver generally moves faster than gold, averaging 1.5 times stronger in recent months. Therefore, on a general rise, it can add another 15% and reach a three-year high ($30 per ounce), after which both metals can traditionally cool down, sliding back down, ”warned Valery Yemelyanov, an expert on the stock market at BCS World of Investments.

He expects metal prices to pick up weakly in 2023 as some of the gains will be lost due to price pullbacks: “Metals don’t stay at all-time highs for long.”