What Will Happen to Gold Prices in 2023?

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By Jacob Maslow

  • Gold may not be a wise investment for 2023
  • Consider treasury notes, bills, or bonds
  • Corporate bonds offer higher returns than government bonds and are a bit riskier
  • Money market investments provide stability and low risk

The conventional wisdom is that buying gold is the best way to deal with economic uncertainty. With the war in Ukraine, natural disasters, and the aftermath of the pandemic, the less stable things seem, the more eagerly the investors flock to gold. 

There’s no doubt that 2022 has been characterized by uncertainty, inflation caused by the end of the pandemic, and the rise in consumer prices across the globe. This sounds like the ideal situation to buy gold stocks, gold ETFs and even physical gold. 


Why Has Gold’s Price Fallen? 


However, late 2022 and 2023 may have not been so rosy for gold lovers. Although inflation is usually the ideal environment for gold investments, the measures many central banks are taking to remedy rising prices and currency devaluation may dramatically bring down the price of gold. 

Gold is often touted as a hedge against inflation. When your currency is devalued, gold at least provides some underlying value and, in dire circumstances, can be sold for currency. The reason people in generations past often kept some gold, silver and other precious metals stashed in case of an economic downturn is they could readily be converted into cash and hold their value. 

However, central banks worldwide agree that raising interest rates is the best remedy for inflation. Even though it means more expensive mortgages and loans, hiking rates is the best way to halt inflation. Interest rates and gold prices are negatively correlated–as interest rates go higher, gold prices go in the opposite direction. 

As was predicted, the Federal Reserve’s interest rate hike brought down gold prices by 8%. With continuing rate hikes in 2023, gold prices are forecasted to drop an additional 4%. 


The Relationship Between Higher Interest Rates and Gold Prices?


What is the relationship between higher interest rates and falling gold prices? When interest rates are higher, it’s logical that interest-bearing investments, such as bonds and money market funds, become more attractive. Gold doesn’t bear any interest, so all other things being equal, investors may give precious metals a pass in a high-interest-rate environment. 

In addition, when U.S. interest rates rise, demand increases for the dollar. Foreign investors want to benefit U.S. investments and lock in these rates. This leads to a rise in the value of the dollar. 

In other words, the time to buy gold would have been a sound investment during a time of uncertainty when inflation loomed. However, investors holding gold now may abandon the yellow metal for interest-bearing assets. This exit will further drive down gold prices. 

Should You Buy Gold on the Decline?

One of the cardinal trading rules is “buy low, sell high.” However, it’s not just buying low but buying an asset at its lowest. This means getting into an investment at its lowest level. 

The question is, “Where is the bottom?” Buying an asset that keeps going lower is often referred to as “catching a falling knife” in trading circles. It can be a dangerous game, and hard to predict how low a falling asset is. 

Although some technical analysts think gold may confound predictions and reach $2,000 in 2023, fundamental analysts by and large, don’t see this happening. Interest rates may continue to rise throughout 2023, which isn’t an optimal environment for gold. 

What to Buy Instead of Gold

Since it’s not clear that there will be a bottom for gold in 2023, the following are better investments for the upcoming year than gold according to Forbes. 

Treasury Notes, Treasury Bills or Treasury Bonds

Bonds are stable but often outshone by stocks that usually have flashier returns. However, with the rise of interest rates and additional hikes expected in 2023, it’s time for government bonds to enjoy their day in the sun. These bonds are backed by the U.S. government and are among the safest investments. 

Corporate Bonds

Corporate bonds are an excellent choice for a bit more risk than government bonds and higher returns. Choose bonds from high-performing companies. The average corporate bond can provide a 4.57% return, and many can be higher. 

Money Market Funds

These investments, like bonds, will benefit investors as the Fed raises interest rates. Unlike bonds, they are fully liquid. Bonds will keep your cash locked down for a while, but if you need the funds, you’ll be able to get money from your money market fund. 

High-Dividend Stocks

A volatile economy is not a time for huge risks. It’s best to select stocks that are conservative investments. They may be companies characterized by steady growth and offer generous dividends. You can compound your investment by re-investing the dividends. 

All That Glitters Is Not Gold for 2023

Although it’s always a good idea to have a little gold in a portfolio, 2023 won’t be a good time to load up on the yellow metal. Buying a decline means being able to spot a bottom in an asset, and it’s hard to tell where gold will start to reverse. In the meantime, benefit from assets that bear let you benefit from high-interest rates such as bonds and money market funds. 


Is it a good time to buy gold in 2023?

No, with the rise of interest rates and additional hikes expected in 2023, it is not an optimal environment for gold. It is better to invest in treasury notes, treasury bills or treasury bonds, corporate bonds, money market funds, or high-dividend stocks.

What are the best investments for 2023?

The best investments for 2023 include treasury notes, treasury bills or treasury bonds, corporate bonds, money market funds, and high-dividend stocks. These investments will benefit investors as the Federal Reserve raises interest rates.

Are there any risks associated with buying gold?

Yes, it can be a dangerous game, and hard to predict how low a falling asset is. There is also no guarantee that it will reach $2,000 in 2023 as some technical analysts believe. Therefore, it is essential to understand the risks associated with investing in gold before making any decisions.

What is the advantage of investing in bonds?

Bonds are a stable investment and will benefit investors as the Federal Reserve raises interest rates. They are also backed by the U.S. government, making them among the safest investments. In addition, they offer higher returns than many other types of investments.

Are money market funds a good investment?

Yes, money market funds are excellent for investors seeking higher returns without taking on too much risk. They are fully liquid, meaning you can access your money anytime and also benefit from rising interest rates.

Are there any other investments to consider?

Yes, ETFs (exchange-traded funds) are an excellent option for investors looking for diversified portfolios. ETFs allow you to invest in multiple companies simultaneously, helping reduce your overall risk while allowing access to potential returns. They also tend to have lower fees than individual stocks or mutual funds. Additionally, real estate investing can be an effective way to build long-term wealth, mainly if the real estate market is strong in the area you choose to invest in.

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