Gold and silver are both trading around key levels at the moment of $2,000 and $25 per ounce respectively. Having already posted strong gains in the past two months, both metals continue to be supported by strong fundamentals, and could be poised for a further breakout.

270423 USD Chart

For gold, central bank buying remains strong, following in the footsteps of a record year in 2022. Countries like China, Turkey and the UAE have all seen significant increases in their gold reserves as they seek to shore up national reserves with the safe haven metal. These large-scale purchases (often tens of tonnes at one time) are significant drivers for the gold price, providing large amounts of demand and will be a big help in keeping the gold price high.

Other than its safe haven appeal, one of the other reasons for a spike in gold reserve purchases is almost certainly a move away from the dollar as a reserve currency. De-dollarisation has been a growing topic in the past few months. Groups such as BRICS – Brazil, Russia, India, China and South Africa – have been increasingly trading in other currencies, and actively encouraging other countries to join them.

Should the dollar lose out on its dominance as the leading global currency, it could have a profound impact on both the strength of the dollar, and commodities – such as precious metals – that have traditionally been priced against the dollar as we move toward a multi-currency global trading system.

The recent banking crisis, though certainly calmer in the past few weeks, saw a brief return to public consciousness this week with First Republic shares slumping. The US bank confirmed that over $100bn worth of deposits had been withdrawn by customers last month when confidence tumbled in the wake of several collapses. Although the spate of bank closures has so far been contained, First Republic is a good reminder that many banks suffered severe levels of withdrawals that has caused further weakness throughout the system.

Finally, markets are now expecting the Fed to complete one more rate hike at their next meeting in May, but to begin cutting rates soon after. This pause or reduction in interest rates will further support gold and silver – weakening the dollar, and making a non-yielding asset like gold more attractive.

At $2,000 per ounce, gold is only $80 from the all-time high previously set in August 2020. With the fundamentals so strong, it isn’t difficult to imagine gold pushing to new records in 2023, and demand from retail investors in both gold and silver remains high as people look at alternative to fiat cash.