How high will precious metal prices go in 2023?

Gold is everyone's favorite commodity again and this will likely continue throughout 2023 as the risk of further banking turmoil, looming credit crunch and rising hopes for a Fed pivot increase.

After two weeks of turmoil in the banking sector, the Federal Reserve raised its benchmark interest rate for the ninth time in just over a year. The Fed raised interest rates in the world's largest economy at the fastest rate in history - from practically zero to the current range of 4,75% to 5% - the highest since 2007. In other words, from March 2022.

Stress in the banking sector

The Fed raised interest rates by 475 basis points. The Fed also signaled that it may be near the end of its rate hike cycle. In part because a decline in bank lending could help the central bank unintentionally achieve its overarching goal of slowing the economy and bringing inflation under control.

At the press conference that took place after the decision in the case interest rates, Fed Chairman Jerome Powell said that stress in the banking sector may trigger a "credit crisis" with significant consequences, resulting in tighter lending conditions, making it extremely difficult for individuals and businesses to qualify for loans and mortgages. Powell concluded by saying that "tightening lending conditions will have the same slowing effect on inflation that a rate hike by the Fed might have."

Historically, the Federal Reserve has never been right about monetary policy and has a proven track record of setting up the economy for an even bigger crisis ahead.

And that's exactly what we're seeing again right now!

Safe metals included

Investors this month in invested in precious metals at an astonishing rate after the collapse of Silicon Valley Bank and Signature Bank, and after the chaotic implosion of Credit Suisse - with many market participants convinced that this may be just the tip of the iceberg.

Last week, precious metals markets saw a net inflow of $5,9 billion. This is the second largest influx into safe metals ever recorded in a single week since the 2008 global financial crisis. The evidence shows that the global banking crisis was triggered directly by soaring interest rates and liquidity risk. However, this crisis could get even bigger as it quickly escalates into a "credit crunch".

Last week, gold prices doubled above $2000 an ounce in a matter of days, making an impressive gain of more than 10% since the Silicon Valley Bank collapsed earlier this month. Interestingly, this is the exact level at which gold was traded three years ago - in March 2020 - just before prices broke all-time highs.

Once again, the stars appear to line up for gold, suggesting new record highs may be on the horizon. This is good news for the bulls, but painful for everyone sitting on the sidelines and now having to decide how much FOMO they can take.