The gold market has seen an impressive rally over the past two weeks as prices hold near their highest levels in three months. But one bank remains firmly bearish on the precious metal for much of 2023.
In his 2023 outlook, Bart Melek, head of commodity strategy at TD Securities, said he believes gold prices will fall below $1,610 an ounce in the first quarter of next year.
He added that he doesn't expect prices above $1,800 an ounce until the fourth quarter of 2023, and it will be another year before the precious metal hits $1,900.
Melek believes that the aggressive monetary policy of the Federal Reserve, which was the dominant factor for gold until 2022, will continue to keep prices down next year. He also said the Fed is not yet ready to change its monetary policy.
"With inflation still raging, the Fed may have no choice but to stick to a hawkish policy stance over the next twelve months or so. We expect that the Fed funds rate will hit 5.50% by mid-2023 and there will be no easing until late 2023. As a result, we expect there to be a general lack of investor interest in gold, at least in the early months of 2023 when rates are still increasing," Melek said.
"Furthermore, there is a risk that still-large long positions being held by family offices and proprietary trading shops could be liquidated, as it becomes increasingly expensive to hold positions," he said. "Capitulation or even some selling of those positions should drive the yellow metal into $1,575/oz territory over the next several months."
Canadian investment bank TDS has been tactically short gold since late July, reinforcing its bearish stance in mid-September with a target at $1,580 an ounce.
Although the Canadian bank expects the latest gold rally to fade by the end of the year and into 2023, Melek noted that the current price action shows how big the potential is in the market when the Federal Reserve does start to reverse its rate hike.
In 2023, TDS is negative not only for gold. The bank expects silver prices to fall below $18 an ounce by the first quarter of next year. They are maintaining this bearish outlook even as prices have risen nearly 20% over the past month, stabilizing at $21.50 an ounce.
TDS predicts that silver prices will stall around $21 an ounce next year, rising to $23 an ounce by the end of 2024.
However, the bank is not bearish on all precious metals. TDS sees upside potential for platinum due to growing demand in the automotive sector and renewed investor interest.
"While EV penetration is certainly growing, a large portion of the growth in the fleet is coming via hybrid vehicles, which still use a substantial amount of PGM content," TDS analysts said in the report. "Overall, platinum as a share of total automotive PGM consumption has actually been increasing in recent years. At the same time, after two consecutive years of investment outflows, the eventual central bank pivot should fuel a combination of both increased industrial demand and investment demand."
The bank forecasts platinum prices to fall to $875 an ounce in the first quarter of next year and then rise to $1,100 an ounce by the end of the year. TDS also predicts that platinum prices will top $1,200 by the end of 2024.
