We’re now well over half way through 2023, and it has been a tumultuous year for financial markets.
It’s certainly been a year of surprises. Global stock markets — and particularly the US market — have rebounded nicely, despite persistent inflation worries and the ongoing war in Ukraine. The S&P 500 was up 14% YTD at the time of this writing.
Precious metals have had an interesting year, too, with gold flirting with an all-time high in May before pulling back slightly. Silver has had a rocky ride, with silver spot prices touching as low as $20 and as high as $26 per oz. Platinum and palladium have been on a downward trend, having still not fully recovered from pandemic-era supply disruptions and weak demand from the auto industry.
So, after an eventful first half of the year, what’s next for silver and gold investors? This 2023/2024 market outlook takes a look at some of the key drivers and events that may be most relevant for precious metals pricing moving forward.
This article is for informational purposes only and should not be taken as financial advice. Future price movements of any asset are difficult to predict. Investing involves financial risk. Speak with a qualified financial advisor if you have questions.
The future prices of any financial asset are notoriously difficult to predict. There are dozens of major factors at play that can influence precious metals prices.
While we can’t predict the future, we can look at some key drivers of supply, demand, global events, and monetary policy that could influence precious metals prices.
Here’s what you should pay attention to in the coming months if you’re investing in precious metals.
Gold (and to some extent, other precious metals) are often seen as an inflation hedge. If inflation continues to remain persistent, precious metals prices could see a boost.
Some investors have wondered why gold hasn’t performed better than it has recently, given high inflation. Part of the reason for this may be that the US dollar has been very strong, which tends to drag gold prices down slightly (because gold is priced in USD, and therefore it costs foreign investors more in their local currencies if the dollar is strong).
Monetary policy is a blanket term for the set of tools that a country’s central bank uses to achieve policy goals (like lowering inflation or strengthening the job market). In times of economic turmoil and/or inflation, monetary policy — and particularly U.S. monetary policy — can have a large impact on financial markets.
So far, 2022 and 2023 have been a year of rapidly increasing interest rates. The Federal Funds Rate was 0.00-0.25% at the start of 2022, and today it sits at 5.25-5.50%.
Higher interest rates pump the breaks on demand, investment, and generally speaking, asset prices. Precious metals have a complex relationship to interest rates. Normally, when interest rates rise, precious metals demand may fall. This is because the interest rates that investors can earn from bonds and other fixed income assets increase, so the opportunity cost of holding gold (an non-yielding asset) is higher.
However, when higher interest rates are also paired with considerable economic uncertainty, as has been the case recently, precious metals markets may stand to benefit.
Demand for precious metals, and particularly for gold, can vary throughout the year. The beginning of the year (January, February, and March) tends to have the highest demand levels for gold.
This is due to a number of factors, including post-holiday demand from jewelry manufacturers and retailers (to restock), the Indian wedding season, and Chinese New Year.
Gold in particular is more subject to consumer and small investor demand, when compared with other precious metals. For instance, the primary driver of platinum and palladium tend to be from industrial demand. With that said, because the gold spot market is so massive, these seasonal demand shifts don’t necessarily have a large impact on gold spot prices.
Demand from industrial firms, like automotive and electronics manufacturers, can have significant influence on precious metals prices. This is particularly true for silver, platinum, and palladium, which have substantial uses in manufacturing.
Data shows that rising industrial demand has already boosted precious metals prices. If interest rates stop rising (spurring investment), we could see even stronger industrial demand.
Central banks from around the world own a lot of gold. In fact, estimates show that they own approximately 20% of all the gold ever mined throughout history, worth trillions of US dollars.
Central banks hold gold for a number of reasons. It helps them stabilize their currencies and economies, facilitate trade and investment, and can be used in geopolitical strategy.
Because they are such massive buyers of gold, central banks can have significant impacts on global prices. And with 24% of central banks intending to increase their holding reserves in the next 12 months, we could see gold prices rise.
It’s always difficult to predict where prices of gold or silver are heading. In fact, it’s nearly impossible to predict the future of any asset price.
That’s one reason why many investment professional recommend building a diversified investment portfolio. This could include stocks, bonds, real estate, precious metals, and more. By spreading out your bets, you are more likely to grow your wealth long-term.
Including precious metals in your investment portfolio can offer a number of benefits. Gold and silver can be powerful diversification tools, because their prices tend to move independently of the broader stock market and real estate markets.
Plus, if you buy physical precious metals, you can diversify the types of assets you hold. Gold bars are a real asset that you can hold in your hand, and gold has preserved wealth for literally thousands of years.
Ready to get started investing in precious metals? If you’re in the Seattle area, Bellevue Rare Coins is the best source for investment-grade bullion. We stock a wide variety of bullion products, from American Silver Eagles to gold bars to platinum rounds.