Gold Outlook: Prices likely to touch Rs 60,000 per gram in 2023

Gold started the year 2022 around $1800 (~Rs 48000) levels, climbed to $2076 (~Rs 55000) in March and fell to $1620 (~Rs 49000) in August. Prices have then recovered back to sub $1800 levels in December. So, all in all, it has wiped out all gains and losses of the year and is trading at the same level as January now on international markets. But in domestic markets, prices are close to Rs 54,500 now, which is equal to around a 15% return. This is because of USDINR depreciating by almost the same percentage.

In terms of economics, inflation reached 9%, while the Federal Reserve raised interest rates. The ECB has also joined the hawkish camp. The Federal Reserve, in particular, aggressively raised the federal funds rate by more than 4 percentage points to 4.52-4.50 percent. As a result, bond yields and the US dollar rose, while cryptocurrencies plummeted.

The likelihood of a recession has increased as we approach 2023. In October 2022, 27 states in the United States experienced negative growth in state coincident indexes, which are used to assess recessionary conditions. In any case, the economy is in a state of stagnation due to high inflation. Such a combination is known as stagflation, and it should benefit gold. The next financial crisis is also a possibility, as many private and public debts are not sustainable at the current, relatively high interest rates.

Gold has started seeing upward momentum since November 2022. Looking ahead, bullion dealers in India anticipate a favourable trend for the precious metal. The tone of the gold market is getting more positive as Jerome Powell signalled the pace of rate hikes would slow at the Fed’s next meeting. In some ways, the market has taken the lead from the Fed. In November, gold gained 8% with talk of Covid related restrictions getting lifted in China. Improvement in China’s economy post lifting of Covid related restrictions and fresh round of liquidity infusion into global financial markets by major central banks (in case the global economy slips into recession) will drive gold prices dramatically high.

So, I believe that 2023 will be a better year for gold than 2022. Given the economic slowdown, the Federal Reserve of the United States will not be as hawkish as it was in 2022. Actually, it may pivot and begin cutting interest rates in 2023, especially given that the US labour market is not as strong as it appears at first glance.

Coming back to the domestic market, the Indian rupee became Asia's worst performing currency in 2022, depreciating around 12% against the US dollar due to a strengthening dollar and capital outflows from the domestic equity and bond markets. Going ahead, the USD/INR is expected to trade in the range of Rs 80-85 / dollar in 2023 as the global inflation and economic concerns continue to dent risk sentiments. Additionally, strong festive demand will keep domestic gold prices supported and take gold prices to trade record high levels above Rs 60000 / 10 gm in 2023.

Technical charts are also showing a favourable trend for the precious metal. We can see a Trend reversal in COMEX Gold Daily Chart as predicted by Inverse Head and Shoulder pattern and Triple Bottom pattern (shown in the chart below). The inverse head-and-shoulders pattern is a common downward trend reversal indicator. The pattern indicates the end of the bearish phase and the onset of an uptrend when the price moves above the neckline resistance.

As we can see from the chart, gold prices have touched the low of $1620 (Head) thrice, which is also a Triple bottom pattern formation. A triple bottom is generally seen as three roughly equal lows bouncing off support followed by the price action breaching resistance.

The neckline resistance of Inverse H&S lies at $1820, if prices sustain above it, the target would be $2000-2020. This means we can see a 10% upside in gold prices. If USDINR remains constant above 80, domestic prices can touch the level of Rs 60000/gm in 2023.

(Mr. Prithviraj Kothari is MD CEO of RiddhiSiddhi Bullions Limited)