Gold & Silver Monthly Review and Outlook - March 2023

Gold Price Outlook

Having initially enjoyed a promising start to 2023, gold enters March with its attention drawn to how much further its current downward slide has left to run. The change in gold’s fortunes has been brought about by February’s reality check on how soon the Federal Reserve is likely to end its current series of interest rate hikes.

Gold had been trading based on a future scenario in which the Fed had already paused further interest rate hikes rather than the present-day reality of more increases still to come. When sentiment quickly switched to better reflect the facts on the ground, gold endured a painful slide throughout February – losing almost $150 an ounce to trade a little above $1,800 an ounce, at its lowest level for two months.

How Strong is Gold’s Support?

The key questions to answer in March will be:

• How strong is the remaining support left for gold? 
• How high and how much further is the Fed likely to hike its benchmark rates?

As such, the first key event of the month will be on March 7^th when Fed Chair Jerome Powell gives his first testimony to Congress of the year. This will shine plenty of light into the US central bank’s thinking on how much further interest rates will need to climb to ensure stubbornly high inflation is brought much closer to the Fed’s 2% target.

Speaking of inflation, the latest figures for the US will come out the following week on March 14^th with the expectation that the pace at which consumer prices are rising is continuing to slow in the world’s largest economy. 

Gold investors will be aligned with consumers in hoping that the February figures paint an optimistic outlook on inflation and give the Fed more breathing room to slow the pace of future hikes. 

Given how much gold was punished in February at the prospect of more interest rate increases, a low inflation print is likely to boost gold and the broader equities markets.

Looking Ahead to the Fed

After Powell’s update to Congress, the latest US inflation and unemployment data released on March 10^th, the markets should have a pretty good understanding of where the Fed is likely to move rates when it meets on March 22^nd. Currently, the forecast is for a 25 basis point increase but it will be interesting to see nearer the time if expectations have doubled the size of the likely March hike.

The second half of March is then full of central bank activity – with the European Central Bank expected to hike its benchmark rate by 50 basis points to 3.5% on March 16^th and the Fed’s decision on the 22^nd followed a day later by the Bank of England, which is currently forecast to match its US counterpart with a 25 basis point move.

In this context of interest rate hikes, it is hard to see gold making significant gains in March, with its lack of yield making the asset less attractive at times of rising rates. However, having suffered a brutal reality check in February, the precious metal has now priced in much of these expected moves by central banks on both sides of the Atlantic. Therefore, assuming these don’t surprise, gold is unlikely to fall much further given the considerable appetite that China, Turkey and India have shown in recent times to increase their holdings, both on a consumer and central bank level.

So while a return to $1,900 seems unlikely, a dip much below $1,800 is also difficult to see with the precious metal instead likely to drift in the $1,800-$1,850 region.

Silver Outlook

Just like its golden peer, silver has endured a difficult February with the price sinking by more than $3 an ounce to trade comfortably below $21 an ounce at its lowest levels since early November. 

These falls have come despite the fundamental outlook for silver remaining very supportive, so after a period in which the metal has suffered under the weight of macroeconomic factors, will March be the month in which silver’s resounding fundamental case is heard once again?

Demand Remains Evergreen

First, let’s remind ourselves of that outlook for silver. The metal is a key component within the electrical sector, due to its conductive qualities. As such, silver is used within some of the key industries of our time, notably carrying the electricity produced by photovoltaics in solar energy, within the batteries of electric vehicles as well as within 5G technology.

As the Silver Institute said in a recent report, “Photovoltaic silver offtake is set to achieve a new peak this year. The Russia-Ukraine war has accelerated the deployment of renewables as governments strive to lessen their reliance on fossil fuels.”

It added: “Demand in the automotive sector should benefit from rising vehicle output, the easing of the chip shortage and the growing use of electronic components and powertrain electrification. Moreover, infrastructure investment and broader decarbonization efforts are boosting electrical and hybrid vehicle demand. The expansion of charging stations which rely on silver is also on the increase.”

Minimal Price Action

Yet despite this bullish industrial outlook, silver has so far failed to make headway and has instead handed back all the gains it made in December. This has been due to markets readjusting how many more interest rate hikes they see the Federal Reserve implementing, with silver punished due its lack of yield in an environment in which more hikes are likely – including in the second half of March from the European Central Bank, the Fed and then the Bank of England.

So far it has been this macroeconomic outlook that has dominated the agenda, yet with inflation finally showing signs that it is steadily coming down, could these lower prices for silver now present a buying opportunity for those awaiting the focus switching back to the metal’s strong industrial outlook? 

Recent history would suggest that March’s interest rate moves will put further pressure on silver with a better entry point likely to come once those moves by the three major central banks have been confirmed. Silver, therefore, looks set to endure a Lent where investors are forced to abstain from any upward gains but can potentially look forward to an Easter rising.

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.