Gold is perceived as a safe-haven asset, a long-term investment and a hedge against uncertainty in the global economy and geopolitics.
The outlook for gold remains unclear this year, according to pundits.
In addition to economic and geopolitical uncertainties, factors such as continued weakness in the US dollar, growing recession risks and the high bond-equity correlation make a positive tactical case for gold in 2023, according to the World Gold Council.
Spot gold prices moved upward over the past six months with slight volatility to peak at US$1,950 per ounce in January, from $1,700 in September last year, according to data compiled by goldprice.org.
Prices started to fall significantly in the first week of February.
Pressured by a stronger dollar and rising US bond yields, gold prices dropped over the past week to touch a new low of $1,827 on Thursday.
An analysis by MTS Gold Group, a Thai gold trading firm, forecasts prices to stay in a range of $1,820-1,850, depending on US economic data that helps to indicate US interest rate trends.
"Although the price of gold depends primarily on the state of the global economy, there are other variables that also determine price trends, such as interest rates, oil prices, the US dollar, as well as demand and supply," said a report by Thai gold trader and jewellery manufacturer Aurora.
The price of gold dropped by almost $100 during the first week of February.
INTEREST RATE POLICY
According to Aurora, hiking interest rates signals a stronger dollar, which undermines the price of gold.
When US interest rates decline, confidence in the dollar also drops, causing gold to strengthen, said the firm.
Andrew Naylor, regional chief executive for Asia-Pacific (ex-China) at World Gold Council, agreed this is a familiar view.
The cycle of US rate hikes has the biggest impact on the gold market and its performance, he said.
As the US Federal Reserve recently lifted the rate by 0.25% to a range of 4.50% to 4.75%, the highest level since October 2007, the gold market both domestically and globally was affected, but not to the same degree as last year, said Mr Naylor.
"As the cycle continues, the impact gets smaller," he said.
Analysts at the council expect monetary policies deployed by central banks across the world to remain tight until at least mid-year.
In the US, the market expects the Fed to start cutting rates in the second half of this year, whereas policy rates in other markets will decline more slowly than in the US.
On Feb 2, Fed chairman Jerome Powell told the Economic Club of Washington inflation would significantly decline this year, with the current personal consumption expenditure (PCE) running at 5% before it reaches the central bank's target of 2% next year.
The Fed will continue with further rate increases amid a strong US labour market, said Mr Powell.
Though disinflation is projected, inflation rates in the global market remain high. Investors are advised to stay cautious, said Louise Street, a senior markets analyst at the council.
"If inflation comes down, this could be a headwind for gold bar and coin investment," she said.
WEAKENING DOLLAR
As the US dollar is a widely used currency and a medium for buying and selling, the currency fluctuates along with gold prices, said Aurora.
The depreciation of the dollar will benefit the price of gold as a safe asset that can store value, allowing each country's money to flow into gold, causing the price of gold to increase, said the firm.
The council's "Gold Outlook in 2023" report said the dollar is likely to be pressured as falling inflation and slower growth take hold, with a more complex dynamic driving the currency over the coming months.
Factors include the shoring up of energy needs in Europe, which will continue to reduce pressure on the euro, and the easing of domestic exchange rates as central banks in Europe, the UK and Japan continue to take a more hands-on approach to their respective currency and bond markets, according to the report.
The report said the US dollar index recently plunged after strengthening for nearly two years straight, attributed to reduced demand for cash dollars.
"Further weakening of the dollar as inflation declines could provide support for gold," the report noted.
Ms Street says investors should remain cautious.
STRONG SUPPLY AND DEMAND
According to Aurora, demand for gold comes from three main sectors: jewellery, investment, and the manufacturing and medical sectors.
Demand is also present in the government sector, as it uses reserves to buy gold to reduce the risk from holding US government bonds.
"High demand for gold results in higher gold prices, while a decrease in demand lowers the prices," said Aurora.
Meanwhile, the supply of gold includes the production from gold mines, sales made by central banks, and all the gold circulating in the market.
"Total supply is expected to rise modestly again this year as expansion of operations is allowing higher production," according to the council's report.
Demand and supply in Thailand are driven by the gold spot rate and the value of the baht, which both fluctuate during the trading week. In addition, domestic demand must be taken into account when determining the domestic price.
Last year was the strongest year for gold demand globally in a decade, according to the council.
Annual global demand for gold in 2022, excluding over-the-counter sales, increased 18% year-on-year to total 4,741 tonnes, the highest level since 2011.
In Thailand, overall annual demand rose 3% last year from 2021 to 37.9 tonnes.
Thailand was the third-largest market for gold in Southeast Asia last year after Vietnam and Indonesia, Mr Naylor said.
In 2022, most countries in the region recorded higher retail investment, with two examples being Singapore (32%) and Indonesia (27%), according to the council.
Thailand lagged in terms of annual bar and coin demand, falling slightly to 28.5 tonnes.
Vietnam led the region in terms of gold market last year, with domestic consumption of 59.1 tonnes and annual demand surging 37% over 2021.
Bars and coins were the most popular choices among Vietnamese consumers, accounting for 41 tonnes of the annual total.
A slowdown in consumer demand is expected this year as the global economy starts to enter a recession, said Mr Naylor.
Mr Naylor says US rate hikes are having less effect on gold prices.
PRICE TRENDS
Nuttawut Wongyaowlak, vice-president of research at Globlex Securities, said the firm estimates gold prices already reached their peak of $1,950 earlier this month.
The price has continued to drop, but remained relatively steady, according to goldprice.org.
Mr Nuttawut said the upside for gold prices in short-term trade would be limited after the price target for this year reached its peak.
Over the past four months, gold prices surged because of the market's expectation the Fed would decelerate interest rate hikes.
"When everything went as expected in January, the gold price rose to its peak during that period," he said.
The gold price may not move much in the short term unless there are factors such as an intensification of the Ukraine-Russia war or the Fed accelerating its interest rate hikes again to control inflation, said Mr Nuttawut.
"In this scenario, those factors could drive the gold price to reach $2,000 an ounce this year," he said.
Investors should monitor these factors closely as medium- to long-term trading still has elements that affect the price of gold, said Mr Nuttawut.
Regarding the outlook for gold this year, Mr Naylor said institutional investment demand would be the biggest driver for gold performance as interest rates and economic uncertainties start to ease.
Central banks will remain net buyers of gold, although the amount might not be at the same level as last year's record tally, he said.
The rise in global demand last year was largely contributed by central banks, said the council's Ms Street.
The purchases, which reached a new 55-year high, jumped from 450 tonnes in 2021 to 1,136 tonnes last year.
The council's report also revealed that emerging market central banks were primary buyers last year.
The Central Bank of Turkey recorded the largest amount, with its official gold reserves rising by 148 tonnes to 542 tonnes, the highest level on record.