Gold & Silver October Outlook – Monthly Review – 2022

Gold in October

Gold investors will be hoping that the worst is now behind them after seeing the price of gold trend steadily down from above $2,000 an ounce as recently as March to barely above $1,600 an ounce during September.

Macroeconomic Policy

However, it is hard to see where these strands of optimism can be found with central banks, particularly the Federal Reserve, maintaining their rhetoric over the need for more significant interest rate hikes. Gold has suffered in this hawkish macroeconomic environment, with the precious metal less attractive at a time of rising rates, making interest-paying assets such as bonds or yield-paying, gold-backed currencies such as Kinesis Gold more favourable instead.

Inflation is why central banks worldwide are hiking rates, with consumer prices rising much faster than the banks’ target of about 2%. Indeed, inflation has proven stubbornly high, far off the transitory shock regarded at last year’s end. While gold has historically been seen as a hedge against inflation having retained its relative buying power over centuries, the impact of fast-rising interest rates has more than outweighed any potential price benefit that gold might have gained in previous highly inflationary periods, viewed through a dollar lens at least.

It is worth noting that while gold’s performance in dollar terms has underwhelmed in recent times on the back of the strength of the greenback, gold has performed much better in other currencies, notably in pound sterling terms for example. Gold has also held its relative value against West Texas Intermediate oil, even with the volatility oil has experienced this year.

As ever, the words and actions of the Federal Reserve and its officials will be closely scrutinised and will be the primary driver of the gold price in October. As such, October 12^th and 13^th look like key dates for gold investors, with the release of the latest minutes of the Federal Open Market Committee followed by the US September inflation figure. The hope will be that inflation has finally peaked with higher interest rates successfully curbing rising consumer prices. However, any indication that the peak hasn’t yet been reached will be detrimental to gold as it increases the likelihood of the Fed making an even more significant hike come the next interest rate decision.

Rising Geopolitical Tensions

Away from macroeconomic policy, where central banks face the tricky task of balancing the need for rate hikes to curb inflation, the ongoing war in Ukraine is a potential wildcard that could impact the price of gold and global markets more widely.

The success of Ukraine’s counterattack in September has raised the prospect of an increasingly desperate Russia further escalating the scale of the conflict. Such an event would raise geopolitical fears, with gold a likely beneficiary of a risk-off market environment, with the precious metal proven as the ultimate safe-haven asset that has endured through centuries of wars. 

Taking all these things into account, gold is more likely to go down rather than up in October with no sign of the pressure being applied by central banks will ease. Given the losses that have seen the precious metal sink to its lowest levels in more than two years, the hope will be that the Ukrainian war has created sufficient haven demand for $1,600 an ounce to be stable support around which the price can stabilise.

Silver Outlook

Silver’s fortunes have moved out of sync with its golden peer, with September proving a month where the price of silver has treaded water rather than suffering another monthly decline.

Support Despite Hawkish Environment 

Hawkish central banks are making all non-yield bearing assets, including silver, less attractive. While silver has undoubtedly been losing ground in the macroeconomic environment, shedding $8 an ounce from its March highs, the long-term fundamental demand for the metal has seen investors buy recent dips in the price and keep it supported around the $18-$19 an ounce mark.

This scenario could well continue into October when hawkish speeches by central bankers and further interest rate hikes cause the price of silver to dip initially, only for the price to recover ground as value-seeking investors flood in.

Demand Forecasted to Climb

While the focus is very much on a short-term outlook in which persistently high inflation needs to be tackled to protect consumers from ever-faster price rises, the longer-term view in which governments and companies across the world need to progress in their net zero commitments is far rosier. Silver has a key role to play in the energy transition with its use in photovoltaics in the solar industry and the batteries of electric vehicles; demand is forecast to climb consistently as a result.

Investors willing to look to the horizon see a metal that is way below its fair value. While rising interest rates make it hard to see silver making huge gains, it is equally hard to see the price going significantly lower.

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.