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Gold prices don’t typically move in line with prices of other financial assets, like stocks. That’s why gold is often considered a safe haven investment asset for your portfolio. The stability of gold can serve as a hedge against inflation and mitigate the negative effects of market downturns.
However, unlike some other types of investments, gold is not an income-generating asset. You can only earn from it when the gold rate per ounce appreciates and you sell it. This article provides an outlook for gold prices in 2023 and beyond to help you determine if gold is a good investment for you.
The current gold rate outlook for 2023
Gold’s price has climbed in 2023, and was up as much as 9% for the year in April. As of the end of June, the price is up around 4% year to date, sitting near $1,920 per ounce.
The rise has been attributed to rising interest rates and stock market volatility, as well as instability in the banking sector. Buying gold during an economic slowdown is an age-old trend because, unlike other investment options like stocks, the value of gold tends to rise as investors seek safe haven assets.
Past performance is no guarantee of how the price of gold will perform in the future, so no one can be certain where the price will go from here. However, demand for safe haven assets may continue to be elevated for the foreseeable future. Earlier this year, UBS Global Wealth Management chief investment officer Mark Haefele wrote in a note to clients that the price of gold could rise to $2,200 per ounce by March 2024.
What could push the gold price up?
The current gold rate can rise for many reasons, many of which revolve around economic and political conditions. Some of these factors include the following:
Domestic political events and economic events
When the U.S. is politically and economically stable, the dollar strengthens, pushing the demand for precious metals like gold lower. Conversely, an unstable socioeconomic environment weakens the dollar and prompts investors to seek stability in gold and other precious metals, which pushes gold rates upward.
Some economists believe this trend has been taking place this year amid congressional disagreements about federal spending and high inflation. The failures of Silicon Valley Bank, Signature Bank and First Republic Bank may have also shook investor confidence in fiat currency (currency that isn’t backed by a hard asset like gold). Some experts say these events have pushed people away from the dollar and encouraged them to buy more gold.
Global recession fears
During and immediately prior to a recession, more people tend to buy gold because of its intrinsic value as other investment assets, like stocks and bonds, are more likely to lose value. Gold can gain in value as more investors buy it to protect their portfolios.
Amid the threat of a recession in 2023, investors turned to gold, which is considered a safe haven during times of economic downturns. The greater the demand, the higher the price.
Weakening of the U.S. dollar
Gold rates are usually denominated in U.S. dollars. For this reason, gold's value has a negative correlation to the dollar's value. In other words, when the dollar weakens — as it did between late 2022 and 2023 — investors tend to buy more gold.
That’s because when such a drop occurs, investors lose confidence in the dollar, which pushes them to buy gold as a safe-haven asset. This creates a feedback loop of higher demand for the precious metal, which in turn drives its price higher.
Notably, a group of nations collectively known as BRICS — Brazil, Russia, India, China and South Africa — are making initial moves to undercut the U.S. dollar’s dominance as the world’s default currency. If these nations succeed in creating a new trading currency, this “de-dollarization” could have a significant impact on the price of gold.
Inflation and interest rates
Monetary policy is another factor that may impact the near-term outlook for gold. Since March 2022, the Federal Reserve has raised interest rates from near zero to a range of 5% to 5.25%. The Fed has indicated there will likely be an additional two interest rate hikes this year as the central bank attempts to keep inflation in check.
Historically, investors believed the value of gold had a negative correlation to interest rates. Recent economic events have called this conventional wisdom into question, though, with some experts suggesting that gold's value might not necessarily depreciate when interest rates rise.
Decline in cryptocurrency demand
Although gold remains a preeminent portfolio and currency hedge, some investors in recent years have also turned to cryptocurrency. However, cryptocurrency’s market has been suffering lately thanks in part to rising interest rates, an erosion of trust in the industry and concern about regulation.
As the prices of cryptos like bitcoin fell during the last year, gold’s price has risen.
What could push current gold prices down?
When the supply of gold is high and demand is declining, gold prices can fall. The following reasons could trigger this combination of conditions.
A rise in expected long-term real interest rates
As previously mentioned, there’s a strong belief that interest rates tend to have an inverse relationship with gold prices. However, historical data shows this may not be the case — and there’s a lot of uncertainty around how exactly the two are correlated.
Since gold is seen as a hedge against rising prices, if investors feel like the economy is healthy and growing, other investments may be seen as more advantageous. For instance, in 2014 when the Fed was concluding its stimulus program following the 2008 financial crisis, the price of gold fell.
The rise or fall of the U.S. dollar
The strength of the U.S. dollar also plays a role. Since gold is dollar-denominated, the price of gold is inversely related to the value of the USD. In other words, a strong dollar keeps the price of gold lower, and vice versa.
Supply and demand
As with any other good or service, increased supply and reduced demand will reduce gold’s price. Much of gold demand is from the jewelry industry, as well as industrial and technological uses.
The value of gold is determined by the market, which in turn is controlled by the performance of other assets. Under certain conditions, investors may want to sell gold, and buy assets that have an even stronger guarantee of security, like U.S. Treasury bonds. That can understandably push down the price of gold.
Gold price outlook FAQ
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What is the future outlook of gold rates in 2024 and beyond?
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Summary of Money's gold rate outlook
- Whether or not you should buy gold comes down to your specific investment strategy. Gold is best when purchased as a “buy and hold” or long-term investment.
- Gold could be a good choice for a risk-averse investor because it serves as a store of value, but keep in mind that you can’t actually make money from your gold until you sell it.
- However, a downside is that gold isn’t an income-generating investment.
- Before you buy gold to protect your portfolio, make sure you know how to buy gold and understand what influences its price.