Commerzbank lowers gold price target to $1,800 and sees potential for higher prices by 2023

The third quarter has been disappointing for many gold investors as the precious metal has been in a sharp downtrend and recently has been unable to hold any gains above $1,800 an ounce.

Although gold has struggled in the face of rising interest rates and surging momentum in the U.S. dollar, Carsten Fritsch, precious metals analyst at Commerzbank, said in a report Monday that the price action is doing a lot better than one would expect given the current environment.

Although gold prices have dropped, prices have held initial support at around $1,700 an ounce as the Federal Reserve embarked on an extraordinary tightening cycle. So far this year, the U.S. central bank has raised interest rates by 2.25%, driving real yields higher and boosting the U.S. dollar to a 20-year high.

"Despite all the complaining about the disappointing gold price development in recent months from an investor's point of view, it should not be forgotten that gold is still the best performer this year compared to other asset classes," Fritsch said in the report.

"Gold is currently trading 4.5% below the level at the beginning of the year. In the case of U.S. bonds, the corresponding loss amounts to 9.5% due to the sharp rise in yields, if the T-Note future is used as a reference. The equity markets have lost around 14% since the beginning of the year as measured by the MSCI World, the bitcoin price even more than 50%," Fritsch added.

While the German bank sees some resilient strength in the gold market, they are still downgrading their gold price forecast for the rest of the year. In the report, Commerzbank said that it sees gold prices ending the year at around $1,800 an ounce, down from the previous forecast of $2,000.

"In the short term, gold could come under pressure again because the U.S. Federal Reserve is likely to raise interest rates further until the end of the year," Fritsch said.

However, Commerzbank isn't completely giving up on gold. The bank said that it is a little too early to look for a recovery, but they see the potential for higher prices by the start of 2023.

"As soon as it becomes apparent that the rate hike cycle is coming to an end, the gold price should start to rise. This is likely to be the case in the fourth quarter," Fritsch said. "Like the market, we expect the Fed to cut rates again next year as the U.S. economy slides into recession."

Commerzbank sees gold prices ending 2023 at $1,900 an ounce, down from the previous estimate at $2,000 an ounce.

The German bank is also lowering its silver price target to $20.50 an ounce, down from the previous forecast of $24 an ounce. For 2023, Fritsch said that prices could rise to $25 an ounce, down from the prior estimate of $27 an ounce.

Fritsch noted that the silver market has been hit with significant bearish sentiment as investors flee the market.

"Since the beginning of the year, the holdings of silver ETFs tracked by Bloomberg have fallen by more than 3,000 tons. This corresponds to 1.5 months of global mine production that is additionally available as supply. Since the beginning of July, the outflows amount to more than 1,900 tons," he said.

However, Fritsch added that by 2023 silver should see more demand due to the global push for green alternative energy.

Finally, Commerzbank is also lowering its year-end price target for platinum to $1,000 an ounce, down from $1,050 an ounce.

"Since the beginning of the year, these have now totalled more than 400 thousand ounces. The platinum market could therefore be more oversupplied this year than previously expected," Fritsch said.

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By Neils Christensen

For Kitco News

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