Gold & Silver February Outlook - Monthly Review - 2023

Gold Price Outlook

Gold has enjoyed a buoyant start to 2023 with the precious metal continuing its impressive rally that started back in early November, recently touching its highest level for nine months. After reaching such highs, the gold price has stabilised around $1,920 an ounce as we enter February.

An End to Rate Hikes in Sight

The main reason for gold’s positive change in fortunes was a reappraisal of how soon the Federal Reserve will first slow and then ultimately stop its recent policy of interest rate hikes, to curb persistently high inflation. 

With inflation having peaked in the US and the jobs and economic outlook for the world’s largest economy so far showing no sign of an impending recession, the US central bank has been able to reduce its recent rate increases to 25 basis points, three times smaller than the majority of hikes implemented in 2022.

This has given gold a significant lift as the metal fell out of favour during the most aggressive period of the Fed’s hikes, with the precious metal’s lack of yield making other interest-bearing assets more attractive in its place. 

Optimal Conditions for a Recovery

By November, attention was starting to switch to how much longer the Fed would keep up its aggressive stance and this change of narrative, alongside the collapse of crypto exchange FTX and a slight weakening of the US dollar. These were factors that provided ideal conditions for gold to make an impressive recovery.

Yet, with the gold price having climbed so fast and so quickly long before the Fed stopped hiking rates, the increase in December was followed by a 25 basis point hike to kick proceedings off in February. Gold finds itself in a position where the facts need to catch up with sentiment to avoid the price coming tumbling down again.

Inflation on a Downward Slope

So far all the data has backed up this elevated gold price, with inflation in the US in particular tracking steadily downward while the rate at which consumer prices are rising is also starting to slow in Europe. Employment remains robust in the US and fears of a European recession are starting to recede slightly, although the continent is far from out of the woods yet.

So where does this leave gold? By the end of January, traders and investors in the precious metal sector were demonstrating that they felt the price had reached its natural peak after a stellar run of gains. Factors such as a move to a more accommodative monetary policy by the Fed and a slight weakening of the US dollar have long since been priced into gold, so it will take a fresh bullish catalyst to drive the price any higher.

Central Bank Buying Increases

Yet the downside also looks well supported, particularly given the active buying of central banks in 2022, with China, India and Turkey all making sizeable additions to their holdings, as they look to reduce the global hegemony of the US dollar in foreign exchange markets. This will be a key theme to keep an eye on throughout the course of the year, with February likely to provide the first glimpse into how large an appetite these central banks still have for gold.

Taking all this into account, February could well be a month of sideways drift for gold, with the majority of the upside potential already priced in. Any dips are likely to be bought into, ensuring the price doesn’t fall far.

Silver Price Outlook

Silver has had a frustrating start to 2023 and enters February looking on with envy at the continued gains of its precious metal peer, gold. Silver has, on the other hand, been treading water.

A Strong Fundamental Case

This curious lack of movement for silver is difficult to fathom as all the factors look to be in place for the price to continue on from the impressive recovery since reaching its nadir in September. 

There is a resoundingly positive fundamental case in which demand is set to outstrip supply for a third year running. This allies with the likelihood that the Federal Reserve will stop rising rates and a global economy that is so far more resilient than was feared. It’s fair to say that silver is a metal to watch this year.

Yet for the time being at least, silver has failed to live up to this hype and has instead traded within a narrow range on either side of $24 an ounce. One side effect of silver’s lack of action, has been the gold-silver ratio pushing out in excess of 80.  

However, investors growing frustrated with silver’s moribund start to the year should hold tight. The case for silver remains strong and with the price having consolidated for such a long time, there should be plenty of support to drive it upward as soon as the catalyst arrives to spark it into life. The case for silver touching $30 an ounce remains stronger than the one for it sinking back to $20.

The question investors are asking themselves is: where will that catalyst come from? At first glance, there is nothing obvious to point to in February that could provide that spark. But when it finally arrives, hold on tight, as silver, with its history of more volatile moves than gold, is likely to rocket.

Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.