While many analysts forecast gold prices of around $1,800 to $1,900 per ounce for the coming year, an interview between Thorsten Polleit and Kitco News reveals something more promising for gold investors. Thorsten Polleit, Degussa’s chief economist, expects gold prices to spike as high as $2,200 in 2023, ending the year at an average price of $2,000. As more investors seek purchase power protection, gold may become the clear winner for hedging against inflation during what seems to be a never-ending period of economic uncertainty.
Polleit also expects silver prices to follow suit. His forecast shows silver peaking at $29 an ounce with an average price of $26 for the year. To put these predictions into perspective, the average forecasts from the annual London Bullion Market Association survey placed silver at $23.65 and gold at $1,859, positioning Polleit’s estimates on the ambitious end.
Polleit’s reasoning behind these forecasts, though, is sound. Polleit explained that his optimism regarding gold’s strong performance in 2023 comes from the global inflation threats that continue soaring as we enter the new year. Despite the slight dip in consumer prices, global banks continue to tighten monetary supplies, which will create rebounding effects.
As the global money supply falls, consumer prices will rise again. “As the money supply shrinks, the price for goods goes up. People still have less purchasing power than they did a year ago, which will be a major drag on growth,” he explains.
After enormous liquidity efforts post-2020 pandemic, global central banks are now tightening their supplies to prevent triggering a new recession. The Federal Reserve’s national money stock supply has increased by 40% since 2019, and the European Central Bank’s supply has increased by 25%.
“Central banks have a lot of liquidity they need to take back, and it’s going to be painful; it’s going to reduce consumption,” Polleit explains. Despite the concerning inflation rates, many markets continue ignoring the concept of an approaching recession because of labor market successes.
“The reality is that markets already don’t have any confidence central banks will normalize monetary policies,” Polleit continues. “Markets can no longer function without a safety net provided by central banks. Once trouble in the economy starts, the U.S., we will quickly see the Federal Reserve pull out that safety net.”
Despite new efforts from the Federal Reserve and confidence from some of its members, Polleit does not believe the central bank will be able to get interest rates to 5%. If the market continues plummeting into late summer, they may begin cutting, though the government’s growing debt makes this concept unsustainable.
In 2021, the government paid $350 billion in debt reduction services with interest rates at 1%. “If interest rates went to 5% and you have to fund $31 trillion, you will end up paying $1.2 trillion in debt. The American defense budget is only around $800 billion. That is unsustainable,” Polleit explains.
Because of the natural cap that interest rates carry, gold remains a safe and effective portfolio tool for many investors. Unlike assets like government bonds, gold remains steady amidst global economic turmoil. “I don’t think holding bonds is a very good long-term solution because real interest rates are going to remain negative,” he explains.
So, how should investors use this information to dictate their portfolio moves in 2023? Polleit offers transparency with his portfolio strategy based on his reasons explained above.
He plans on retaining about 60% of his funds in EFTs and diversified stocks and 40% in precious metals investments. When breaking down the precious metals sector, Polleit intends to keep about 70% of his investments in gold and 30% in silver.
“If you are wondering if the current gold price is a good buy, I would say that in the long-term, gold is still cheap given the current conditions,” Polleit explains.
Whether gold reaches $1,900, $2,000, or Pollet’s expectation of $2,200, it will likely outperform many other investment classes. As global economies face extreme inflation rates and poor market conditions, precious metals offer a glimpse of security and financial protection.
Whether or not the economy will recover enough to reduce gold prices in the next year, five years, or decade is not a simple question. Investors should consider gold’s long-term value when planning their portfolio. Regardless of the current economic landscape, gold typically offers strong performance rates when held for decades.
As always, investors should speak with their financial advisors for investment advice before making portfolio decisions.
