Amid Unstable Equity Markets, Investors Are Scrambling For Other Opportunities – FOREX.com Economists Look Into The Outlook For Gold And Oil In Their 2023 Commodities Outlook

In a recently published report, Matt Simpson, a senior market analyst at FOREX.com, presents the story of oil and gold last year and predicts where the commodities’ prices may lie at the end of 2023.

“It has been a turbulent year for markets to say the least, with a mixture of supply chain bottlenecks, war and demand-driven inflation creating ripples across financial markets,” Simpson writes.

The equities market has arguably suffered the most from 2022’s macroeconomic events. Market proxies like the SPDR S&P500 ETF SPY and Invesco QQQ Trust Series 1 QQQ suffered 20 to 30% declines last year. A stream of tech-centered layoffs coupled with a consensus amongst economists of an impending recession has done little to ease qualms in 2023.

As a result, investors and traders have shifted their focus to other markets. Commodities like gold and oil, Simpson argues, are potential destinations for investors escaping the turbulent equities market. In the 2023 Commodities Outlook report, Simpson examines arguments for a sustained interest in gold and oil and the macroeconomic factors influencing their prices.

2023 Commodities Outlook: Gold And Oil 

Despite lackluster returns for gold last year, the World Gold Council (GWC)’s year-to-date demand is back to pre-pandemic levels and at its highest since 2016. Simpson posits that the source of this demand arises from the following macroeconomic trends: 

1. Jewelry and fabrication, which make up over 50% of gold demand, rose to a four-year high of 1589 tonnes between Q1 and Q3 in 2022. Demand for gold has risen in China by 58% quarter-on-quarter (QoQ) and in India by 17% year-on-year.
2. For gold coins and bars, which are the second-largest source of demand for gold, the annual rate of demand has risen to a 9-year high.
3. Soaring inflation has incentivized banks to stockpile gold. As a result, demand for gold has risen two-fold between Q1 to Q3 in 2022 compared to the same period in 2021. Moreover, the central banks’ demand for gold set a new record in Q3 of 2022.
4. An annual survey from June 2022 finds that gold continues to be viewed favorably by central banks as a reserve asset and 61% of respondents said they expect to increase their reserves over the next six months. 

Simpson posits that interest rates, inflation and global gold supply will be strong influences on gold’s price in 2023.

Looking at oil, the price of the commodity surged in 2022, rising approximately 75% between January’s low and March’s high and peaking at the price of $300 a barrel. Mean reversion, however, quickly enveloped the oil market, leading to a descent in price and a wave of volatility that provided ample trading opportunities. 

Source: Forex.com’s 2023 Commodities Outlook

Simpson argues that oil’s main price drivers in 2023 could be heavily influenced by: 

1. Weak growth and a potential recession
2. China’s full reopening
3. The European Union’s ban on Russian oil
4. The Organization of Petroleum Exporting Countries (OPEC) intervention efforts
5. De-escalation of the Russian-Ukrainian war
6. European weather trends

The 2023 Commodities Outlook report concludes with FOREX.com’s estimates of gold and oil prices in 2023. It also provides a far more comprehensive breakdown of the demand-supply relationships in both commodities. 

Traders interested in the commodities sector can read the full report here.

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