As of 2022, the primary driver for precious metals in the year 2023 will be the US dollar. It is true that the US dollar is currently in a state of overdrive. Yet, this overdrive is temporary. It is not sustainable in the long term. The US dollar is bound to come across significant resistance over time. As the high demand for the US dollar was pushing down the precious metals in 2022, the opposite may be expected in 2023. This dollar dynamic is the key to understanding the investments in precious metals in the new year.
Precious metals are also susceptible to monetary policy. Economic policies have an inverse correlation with precious metals. In 2022 the monetary policy was tight. This placed the precious metals under stress. When silver and gold were all set to break out in March last year, they were restrained by the tightening of the monetary policy. Expectations related to inflation are one other key driver of precious metals. Tight economic policies have certainly checked inflation. Still, once this tightening is stopped, inflation will again soar. Investors may be expected to invest in precious metals to hedge against an upcoming inflationary economy.
The physical scarcity of precious metals is another factor impacting prices. This physical scarcity is most pronounced in the case of silver. All the detectable signals point towards a severe shortage of silver in the coming months. The retail premiums over silver are historically high. There is a surge in demand for silver in the manufacturing hubs like India and China. Still, there is a scarce increase in the supply. Hence, the physical need for silver may rise even by all conservative estimates. This will push the price of silver to new heights.
The prices of gold are also poised to soar in 2023. Some experts believe that gold will perform much better in the first quarter. The demand generated by the central banks is one reason behind this optimism. Moreover, ongoing geopolitical tensions are also raising the price of gold. It is true that most of the central banks, including those of China and India, have been purchasing gold quickly. They have been shifting their preference towards gold to diversify their holdings. This is being done to cut their reliance on the US dollar. The demand for jewelry in the world markets is also expected to rebound this year. Again, as in the case of silver, it is likely that the physical supply of gold may also shrink. The precious metal is expected to sustain its weekly appreciation at the established rate.
2022 saw an immense physical shortage of platinum. Following the Ukraine crisis, platinum showed a sharp price increase in the last quarter of 2022. However, even though Russia is the second largest supplier of platinum, the concerns related to physical scarcity have subsided. Platinum has evinced a slight fall in price. Still, a push in demand for platinum over time may again soar prices. The precious metals may be expected to do well in the first quarter of 2023.