Gold Price Forecast | Is Gold a Good Investment? (2024)

The gold market narrative has been driven by the contrasting effects of persistently high inflation and central banks – particularly the US Federal Reserve (Fed) – raising interest rates to battle soaring consumer prices.

Gold prices retreated to $1,823.90 as of 8 March, after peaking at $1,959.10 on 2 February, the highest level since April 2022. The precious metal has fallen 1.17% since the start of 2023 amid an unstable economic landscape for 2023.

What are the prospects for the gold market going, given the current macroeconomic and geopolitical environment, and should you invest in gold now? Here we take a look at the recent drivers and gold price forecasts from analysts.

Gold price live chart

What are gold’s key price drivers?

Gold is a rare precious metal found in quartz veins and stream gravel, in its pure form. Gold has a history that goes as far as Ancient Egypt, and is a highly influential commodity in the global economy.

The gold’s price is shaped by the forces of supply and demand, although the metal is appreciated beyond its instrumental value. Some investors use gold as a safe-haven asset during recessions or periods of uncertainty, or as a hedge against inflation.

Historically, periods of high inflation have been positive for the gold’s price, as investors tend to flee from fiat currencies towards the yellow metal. Hence monetary policy by central banks in controlling inflation is key in driving the gold’s price.

As a tradable commodity, gold is denominated in the US dollars, which creates an inverse relationship with the greenback. When the US dollar rises against other currencies, gold becomes more expensive, which hurts demand. When USD falls, on the other hand, this boosts the gold’s price as the metal becomes cheaper for overseas buyers.

Gold is also used to produce jewellery, which is especially popular in China and India –some of the world’s biggest buyers –for festivals and weddings. The biggest gold importers in 2021 were Switzerland, India, the UK and China, according to Statista.

Gold prices reverse trend in late 2022

Gold prices surged to near-record levels in February 2022 passing $2,000 pre oz mark as Russia invaded Ukraine and pessimism prevailed in the markets. The bullishness, however, was short lived as the commodity embarked on a downtrend, falling over 20% by September 2022. The fall was driven by strong US dollar and aggressive interest rate hikes by the US Fed.

In late 2022 and the first weeks of 2023, however, the precious metal saw a trend reversal, enjoying a series of higher highs and higher lows. The gold’s price rose by 14% fromNovember 2022 to early February 2023, supported by a less hawkish tone by the Fed’s Jerome Powell. Plus, the reopening of China’s economy and hence stronger jewellery demand boosted the price at the start of 2023.

However, from February onwards the price has experienced a downtrend, falling almost 7% to $1,823.90 as of 8 March.

US dollar in focus

The price of gold has been largely influenced by a weaker US dollar index (DXY), as the Fed slowed interest rates hike to 25 basis points (bps) at the February 2023 meeting, from the previous 50 bps in December 2022 and 75 bps in November 2022, signalling slowing monetary tightening.

The dollar has benefited from the uncertain macroeconomic environment, with concerns about high inflation, the prospect of recession, slowing growth in China and the impact of the Russia-Ukraine war prompting investors to sell other assets in favour of holding the greenback.

The DXY, which measures the dollar’s performance against a basket of other currencies, peaked at 114.68 on 28 September – its highest level since April 2002.

However, as the Fed’s policy of monetary tightening appears to be showing signs of nearing an end, some analysts have said the dollar has peaked. HSBC foreign exchange strategists wrote in note to clients in late December 2022:

“We expect the US dollar’s powerful climb over the past year to reverse in 2023 as the Fed’s hiking cycle comes to an end. It has peaked.”

The Fed has hiked interest rates seven times in 2022 to combat soaring inflation, with the latest softer hike of 25 bp increase on 1 February 2023. The US central bank is likely to maintain but slow its rise in borrowing costs, as indicated by the minutes from the mid-December meeting.

The Consumer Price Index (CPI) eased to 6.5% year-on-year in December 2022, marking the sixth month of consecutive decline in inflation. The CPI is the most well-known indicator of inflation and measures the percentage change in the price of a basket of goods and services consumed by households.

Could recession support gold?

The economists at the Fed noted that the current dynamics in the bond markets, particularly the inverted yield curve - an event when interest rates on long-term bonds are lower than those of short-term bonds - has historically preceded recession. Yet they said that it could also mean that investors expect the nominal interest rate to fall as inflation eases.

A recession would be supportive to gold prices, but the sharp increase in interest rates being used to tackle inflation has so far been limiting the upside for the precious metal. As noted by the German firm Heraeus:

In July 2022 the World Gold Council, the market development organisation for the gold industry, predicted that the commodity could face two key headwinds. The council’s mid-year gold outlook outlined the following negative factors that could exert downward pressure on gold:

• Higher nominal interest rates

• A potentially stronger dollar

However, the council also noted that the potential negative effects from the above may be offset by other, more supportive factors, including:

• High, persistent inflation with gold playing catch-up to other commodities

• Market volatility linked to shifts in monetary policy and geopolitics

• The need for effective hedges that overcome potentially higher correlations between equities and bonds

Gold price forecast for 2023 and beyond

Analysts at German technology group Heraeus outlined their thoughts on gold’s potential future in their Precious Metals Forecast on 6 December 2022:

“The direction of the dollar will determine any potential gold price gains. It is anticipated that the Fed will change policy direction at some point in 2023, as inflation continues to ease and a weakening US economy becomes a more pressing concern. That could lead to a change of direction for the dollar, and hence potential price upside for gold. Gold is forecast to trade in a range between $1,920/oz and $1,620/oz.”

Juerg Kiener, managing director and chief investment officer of Swiss Asia Capital, was more bullish in his gold price predictions. According to his comment to CNBC’s Street Signs Asia on 28 December, gold prices could surge to $4,000 per ounce in 2023 as interest rate hikes and recession fears keep markets volatile.

Kiener explained that many economies could face “a little bit of a recession” in the first quarter, which would lead to many central banks slowing their pace of interest rate hikes, which would make gold instantly more attractive. He added:

“Since [the] 2000s, the average return [on] gold in any currency is somewhere between 8% and 10% a year. You haven’t achieved that in the bond market. You have not achieved that in the equity market. Gold is a very good inflation hedge, a great catch during stagflation and a great add onto a portfolio.”

As of 8 March 2023, algorithm-based forecasting website Wallet Investor was bullish in its gold price forecast for 2023, predicting the commodity to rise to $1,860.235 by the end of the year.

The website was similarly optimistic in its long-term predictions for the precious metal, as its gold price forecast for 2025 saw the price rising to $1,964.550 by March of that year. The website’s five-year gold price forecast indicated a price target of $2,129.945 by March 2028.

Gov Capital’s algorithm-based gold price outlook echoed the bullish sentiment in its long-term forecast as of 8 March.The site’s gold price prediction for 2023 saw the price rising $1,929.59 by the end of the year, while its gold price forecast for 2025 indicated an eye-watering average price of $4,774.87by the end of the year.

A gold price forecast from TradingEconomicsexpected the commodity to trade at $1,832.43 by the end of the first quarter of 2023. The website’s macro models and analysts’ expectations saw the price of the precious metal falling to $1765.64 in 12 months’ time.

No analyst or algorithm-based website provided gold price forecasts for 2030.

Final thoughts

When considering gold price predictions, it’s important to keep in mind that high market volatility makes it difficult to produce accurate long-term estimates. As such, analysts and algorithm-based forecasters can and do get their predictions wrong.

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and a wide range of analyst commentary before trading. Keep in mind that past performance is no guarantee of future returns and never trade more money that you can afford to lose.

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