Gold, silver to shine brighter in 2023? Any dip a buying opportunity, say experts

A roller coaster ride has fewer ups and downs than what the bullion market had in the year 2022. Both the metals, gold and silver, kept the market participants on the edge. Comex Gold has made a high of $1935 and a low of $1630, while silver, on other hand, made a high of $25 and a low of $18. On a YTD basis, both the metals have a return of -2 percent and 2 percent, respectively, on the internal bourses.

According to experts, the precious metals are likely to continue sluggish momentum in the first half of 2023 as this year, making it a good opportunity for investors. Meanwhile, they expect the yellow metal to give stronger returns in the second half of 2023.

“The yellow metal has gained marginally (0.5-1 percent) this calendar year in dollar terms. It has gained over 11 percent in rupee terms. The attractiveness of gold is high in a low-interest rate regime. Gold has started giving up gains since the US Fed and other major central banks started hiking rates in May 2022. The rising rates, hawkish comments, and withdrawal of easy liquidity reduced the investment appeal of gold," said Colin Shah, MD, Kama Jewelry.

Shah expects gold prices to trade sideways till H1CY23. Festive demand and global central banks pausing their rate-tightening policy will push demand for gold in H2CY23. A pause in the rate hike cycle will lead to softening of the USD, thereby making it cheaper to buy gold and silver, he added.

"Gold is an international commodity and is mostly traded in USD. So the USD trajectory impacts the prices of these precious metals. Expect gold to trade in the range of $1900-1975 in CY23, ₹55,000-57,000 in INR terms," he predicted.

What affected gold in 2022?

According to a report by brokerage house Motilal Oswal, factors such as move in dollar index & yields, aggressive monetary policy stance from major central banks, rising inflationary concern, geo-political tension led to the volatility.

Inflation has been the theme of the market since the last year and major central bankers were quite active in bringing the same to their respective tolerance zone, it stated. Towards the second half of this year the focus has also been on growth, as an aggressive policy tightening stance is also increasing fears regarding recession in the market, MOSL pointed out. Institutions like IMF and World bank have has also shown their concern regarding the growth in the next year, by significantly trimming their global growth forecasts, it added.

However, the domestic story is quite different, as even after such macro factors, India did not witness much fall on the MCX amidst factors like sharp depreciation in the rupee coupled with a hike in basic customs duty by 5 percent on gold, it added.

"The year started with ease off in pandemic fears and expectation over transitory inflation, however, things took a drastic turn, with an escalation in the Russia-Ukraine war increasing panic in the market. War raised worries over the supply chain and led to inflation higher across the globe. A sharp surge in inflation led major central banks to follow an aggressive stance on their monetary policy front. In total, major central banks have raised rate hikes first announced by the BOE, followed by the Fed and recently BOJ, who till now was in favor of the loose monetary policy… The rise in interest rate expectations has also led to a rally in Dollar Index and Yields weighing on safe-haven assets," explained the brokerage.

ETF flow has also disappointed market sentiment this year, as SPDR holdings on YTD have given -6 percent returns, informed MOSL. The rise in ETF inflow is also important to lift the overall sentiment for bullion markets. However, on the domestic front, gold and silver ETFs have performed well, giving an average return of 12 percent and 15 percent, respectively, highlighted the brokerage.

Trends for 2023

2022 has definitely given a boost in market participants' confidence w.r.t gold and silver. Along with Russia-Ukraine tensions, inflationary concerns and the Covid scare in China, market participants will also carry the baggage regarding slower global growth into the next year, said MOSL. Going ahead, market participants will keenly focus on the monetary policy stance of major central bankers. A move in the dollar index and yields will also be watched by the market, it added.

Shah pointed out that as China is the biggest consumer of gold, the lockdown situation, demand during the Chinese New Year in February and the Golden Week in October, will drive prices. The trade tensions between the US and China are another big factor that may affect prices. Any escalation of geopolitical tensions between Ukraine-Russia, recession in the West, movement of the dollar index, and gold buying program by global central banks will guide the larger price trajectory for gold and silver in 2023, he added.

Silver vs gold

Since the start of 2022, MOSL has been more in the favour of silver with expectations of it outperforming gold, and the returns comparison depicts the same. 

“However, going ahead, there we do see some signs of exhaustion in both metals but these dips could be used as buying opportunity for any medium to a long-term investor for the target of ₹58,000 in gold and ₹73,000 followed by 82,000 in silver,” predicted the brokerage.

Shah of Kama also expects demand for silver to remain robust as it is an industrial commodity. Further, a shift to 5G technology and related upgrades, solar energy, and EVs will keep silver demand high in 2023, he said. For silver to scale new highs in 2023, it is important to first cross March 2022 highs ($24) and then August 2020 highs ($28). These levels will act as key resistance levels, Shah forecasted. Meanwhile, he expects gold to trade in the range of $1900-1975 in CY23.