UBS, a Swiss-based investment banking company providing financial services in over 50 countries, predicts gold prices to reach $2,100 by the end of 2023, and $2,200 by March 2024. Given gold’s 9.2% year-to-date price rise to averages remaining healthily above $2,000, UBS’s predictions only make sense. The primary driving factor that UBS notes behind its forecast is central bank demand.
“A key feature of the rally has been solid central bank demand and financial investors returning to the market, with exchange-traded funds (ETFs) plus futures and options markets all recording the strongest demand in over a year,” UBS explains. “March was the first month of net inflows from ETFs in almost a year.”
UBS predicts central bank demand to persist for at least another year, pushing gold prices even further. While central bank buying typically doesn’t influence the gold market that significantly, the recent demand rates have created enormous ripples affecting how currencies around the world operate.
2022 marked the largest gold purchase year from central banks on record, though this year may quickly break that record. January and February’s purchase records showed the largest net figures for the first two months of any year since net purchases began in 2010, even breaking 2022’s figure. At some point during 2022, a monumental shift occurred where central banks around the globe realized that the only way to stop relying on the U.S. dollar as it loses value is by purchasing a more stable, reliable asset: gold.
Gold is an integral aspect of the de-dollarization trend, though de-dollarization isn’t a temporary trend; it’s what many believe to be the future. Analysts predict we’re moving toward a multipolar world where new economies and currencies beyond the U.S. dollar can emerge, thanks to gold.
All this being said, gold will remain a staple in central bank purchases moving into 2024 and beyond, according to analyst predictions.
“Traditionally, central bank demand is considered a second-order price driver, as buying activity rarely meets the same scale of flows related to ETFs, hedge funds, and other investment demand. But this all changed in 2022. Central bank buying was strong last year—the highest level of annual demand on record dating back to 1950,” UBS explains. “Central banks’ share of total demand was 23% in 2022, versus 8–14% between 2011 and 2019.”
UBS noted the HSBC Reserve Management Trends Survey in its forecast. The survey polled 83 central banks, showing that more than two-thirds believed fellow survey responders would purchase more gold during 2023. The primary reasons for purchasing more gold included inflation and geopolitical risks.
“Looking at 2023 so far, official purchases have totaled more than 120 metric tons, which, at this pace, would see annual purchases total around 750 metric tons. While this represents a slowdown in the pace of buying, this level, if reached, would be the second highest in history after last year’s record of 1,136 metric tons,” UBS explains.
While the math above may put 2023 at a lower net total than 2022, keep in mind that 2022’s impressive figure largely came from the final quarter. In Q4 2022, central banks purchased 417 tons of gold, approximately one-third of the year’s total purchase amount. If a similar frenzy happens at the end of this year, we could easily see a record-breaking figure.
Demand could always slow down with the significant rise in gold prices, but it could also accelerate as the de-dollarization trend gains more momentum with further inflation risks spreading across the globe. The shiny precious metal already climbed by over $150 in the first quarter of this year, so it’s not unreasonable to predict another $100 by the end of the year, according to UBS.
“We prefer gold as a buy in a portfolio context and forecast prices to touch USD 2,100/oz by end-December and USD 2,200/oz by end-March 2024,” UBS concludes.
Gold reached $2,055 per ounce on April 13, just $45 below UBS’s end-of-year estimate. As of April 28, the shiny precious metal sits at $1,999. Investors seeking an opportunity to buy during a lull may see this as a sign to jump.
The U.S. Federal Reserve recently hinted at additional interest rate hikes in May to combat inflation, while the news on oil cutbacks from OPEC+ should begin May 1. Both of these events will likely cause some temporary price fluctuations. As always, investors should consult their financial advisors before making any portfolio decisions.