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Scott Schamber
April 12, 2023

Gold: Price 'Check Up' & Outlook

Since the start of the year, we’ve seen a lot of contradictory views on the yellow metal’s prospects in the mainstream financial press. Analysts appeared to be confused by gold’s performance in the first couple of months, while there are numerous factors currently at play that can be selectively used to support almost any forecast, from ultra-grim, bearish scenarios to a $4,000 price target by the end of the year, as the chief investment officer of Swiss Asia Capital predicted.

"Gold: Price 'Check Up' & Outlook" appeared in the 2023 Q1 Digger, a quarterly newsletter created by BFI Bullion AG. You can read the entire Digger by visiting the following website: All invested clients and partners of BFI Bullion get the Digger automatically, but you can subscribe to receive them every quarter. Learn more in general about the precious metals market and BFI Bullion by visiting the website.

As we have repeatedly highlighted to our clients and readers, at BFI Bullion we are not in the business of forecasting. However, we are in the business of hedging against real risks, of protecting our client’s assets, and of planning ahead. This requires us to take into account not only what came before and what’s happening now, but also to use this knowledge and experience to anticipate what might come next. This is why we chose to prepare a much more well-rounded analysis on gold that goes beyond mere price forecasts and offers a more nuanced perspective that can provide real value to long-term physical precious metals investors.

Market dynamics

One of the reasons that mainstream analysts seem to be so confused and divided over gold’s outlook is the fact that conventional wisdom appears to have failed us this time: if inflation goes up, gold prices should follow. Especially after last year’s record CPI readings, and with inflation still stubbornly high, a lot of investors have been disappointed to see gold prices trending lower, contrary to expectations. The series of interest rate hikes by the Fed and the general global monetary tightening efforts haven’t tamed consumer prices, let alone bring them anywhere close to the “2% target”. One would expect investors to be flocking to gold by now, clearly doubting the ability of central bankers to bring inflationary pressures under control, but that hasn’t happened yet. Of course, we’ve seen an encouraging price recovery since last November, but it’s far from a “moon” rally that many gold bugs expected.

Well, as we explained in our last issue of the Digger, that’s not entirely true. Even at the peak of consumer price increases, gold might not have soared in USD terms, but it certainly did in other currencies and in countries that have been hit the hardest by inflationary pressures and by uncertainly over an imminent global recession: gold prices recently surged and demand hit all-time highs in Egypt, Turkey and most notably India, one the world’s biggest hubs of gold demand. Even for dollar-centric investors, however, the outlook is far from negative. While it’s true that the rate hikes and the relatively strong USD did put downward pressure on gold, the present dynamics are clearly not sustainable. This is not an “equilibrium” and we cannot possibly expect the higher rate policy to persist without causing a serious and prolonged economic meltdown, especially since the Fed has so little to show in its fight against inflation.

Realistically, there are only two scenarios we can expect to see unfold in the coming months. As investor concerns grow louder and louder over a Fed-induced recession, and as household budgets get increasingly squeezed by higher rates, we could see a premature monetary policy reversal, likely encouraged by political pressure. If central bankers do “blink first” and swiftly return to rate cuts while inflation is still raging to avoid triggering a full-blown recession, gold investors are clearly going to benefit. But they also stand to benefit from the opposite scenario: should the Fed stay the course, even a mild recession is bound to lift gold prices, due to safe haven demand. We’re already catching a glimpse of this: The recent bank failures in the US and in Europe that sparked contagion fears in the minds of many investors have already served as a remarkable boost for the yellow metal.

A lot of market analysts today tend to rely too much on central bankers’ comments, speeches, and forward guidances. However, we find that it is a lot more helpful to focus on their actions and not their words. This is why we see last year’s central bank gold-buying spree as a very convincing argument in favor of a bullish outlook. In 2022, central banks globally purchased around 1,136 tonnes of gold, the most in 55 years and up from 450 tonnes the year before. And the trend shows no signs of reversing anytime soon. According to the World Gold Council, “central bank gold demand in 2023 picked up from where it left off in 2022. In January, central banks collectively added a net 31 tonnes to global gold reserves (+16% m-o-m).”

The far-reaching implications of the Ukraine war

Looking beyond the most commonly cited factors we examined above, we feel it is essential for precious metals investors to consider the bigger picture too. If we “zoom out” and look at all the current “hotspots” and possible destabilizing factors for the world economy, there’s one that clearly stands out. The war in Ukraine has already defied all initial predictions and expectations by entering its second year and showing no signs of abating. There have been no attempts at peace talks and no indications that either side is prepared to negotiate an end to the hostilities. If anything, the war seems to be escalating, as the allies step up their financial and military aid to Ukraine and as Russia is proving increasingly resourceful in sidestepping sanctions and in finding alternative funding for its own war effort.

The conflict is also indirectly spreading and dividing the planet even more, with formidable economic powerhouses, who previously remained on the sidelines, starting to get more actively involved in recent months. The world’s biggest democracy, India, has refused to condemn Russia and join the Western allies in imposing sanctions. While Europe has gone to great lengths to reduce its Russian oil and gas imports in order to cut Moscow’s funding, India seized the opportunity and agreed to buy Russian oil at bargain prices. The transactions in the last three months amounted to the equivalent of several hundred million dollars and this move presented a challenge to the USD too. As Reuters reports: “after a coalition opposed to the war imposed an oil price cap on Russia on Dec. 5, Indian customers have paid for most Russian oil in non-dollar currencies, including the United Arab Emirates dirham and more recently the Russian ruble.”

China, a long-time Russian ally in the de-dollarization push, has also become more vocal on the war recently, by putting forward a twelve-point proposal to resolve the conflict that has been dismissed by the US and its allies as too biased towards Russia. And while Beijing has publicly and repeatedly proclaimed its neutrality over the last year, the country’s exports and imports with Russia soared at a double-digit pace in January-February from the year before, while its seaborne imports of Russian oil are expected to hit an all-time high in March. On the matter of the currency, Chinese Foreign Minister Qin Gang was also quite clear: "Currencies should not be the trump card for unilateral sanctions, still less a disguise for bullying or coercion”.

Russia has been stockpiling gold since the invasion of Ukraine

The question of de-dollarization is one that has the potential to impact the gold market very heavily and as we also outlined in a recent article on our blog, there are many relevant developments that investors should pay attention to in the coming months. It is too early to tell whether the Ukraine conflict will act as a catalyst, but it is certainly accelerating long-standing efforts by the world’s “superpowers-in-waiting” to dethrone the greenback.

Special considerations for physical gold investors

The points we discussed so far are certainly worth evaluating for all gold investors, however those with physical holdings have some additional factors to include in their strategic planning process. As we already predicted in 2020, in our ,Special Report, On the Brink of a New Era – Are You Prepared?, one of the key risks to investors and ordinary savers over the coming years would be financial repression. Regrettably, what we saw in the years that followed more than justified these concerns and today we see this risk as imminent and as serious as ever.

The political rhetoric in the West on issues of economic equality and wealth redistribution has hardened exponentially over the last years. In the US and in many European nations, tax increases, once considered taboo in any political speech, have become a favorite talking point for both incumbents and for the opposition. The idea of responding to inflationary pressures and to an economic crisis by simply forcing the rich to “pay their fair share” is promoted as an easy fix and it is understandably popular, but the extremely dangerous real-life implications of it are hardly ever discussed.

To make matters worse, the continued push towards digitalization, the significant government advances in the “war on cash” and the introduction of Central Bank Digital Currencies (CBDCs) that is already on the horizon, make the outlook for individual financial sovereignty even darker. Banking secrecy and transaction privacy are already largely a thing of the past, but these developments could mean that states could soon be handed nearly absolute control over individual accounts. And as these states grow increasingly indebted and increasingly desperate, we can expect the measures they take to reflect that too.

When you combine this with the recent banking turmoil, this is exactly why we feel that it is more important than ever for investors to hold at least part of their wealth in physical precious metals, and to do so outside their home country, securely stored in a predictable and stable jurisdiction like Switzerland, and outside of the banking system.

,Read the full Digger here or download it below.

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