Despite the rise in gold prices this week, the precious metal could still fall to $1,650 by the end of the year before a recovery begins, according to Capital Economics' latest forecast.

Since peaking in March, when gold traded above $2,000 an ounce, the yellow metal has begun to retreat, falling by about 11%. The decline was due to the strengthening of the US dollar and the Federal Reserve's aggressive fight against inflation through an excessive increase in interest rates.

This week, gold has stabilized after falling to $1,700 an ounce, with prices even trying to climb to $1,800.

The slowdown in economic growth and falling prices for non-energy goods indicate less monetary tightening in the US than investors expected. In recent weeks, 10-year bond yields have fallen, US equities have risen, and the dollar has weakened.

Capital Economics had previously forecast a fall in gold prices since March, citing a strong US dollar outlook offsetting gains from additional asylum flows fueled by geopolitical tensions in Ukraine.

Because of this macro outlook, the gold outlook for the remainder of 2022 remains negative. But in 2023, the picture will change.

According to Caroline Bain, chief commodities economist at Capital Economics, 10-year Treasury yields will rise slightly by the end of the year to around 3% and 2.75% by the end of 2023. Accordingly, the dollar will strengthen. But there is still huge uncertainty about the outlook for the global economy and the impact of geopolitical tensions in Ukraine. Bain believes that for now, we can expect gold to fall further slightly to $1,650 an ounce by the end of 2022 before prices start to rise again in 2023.

In the near future, demand for jewelry in India may decrease due to a rise in import duties from 7.5% to 12.5% and rupee depreciation, which will put pressure on prices. On the other hand, physical demand from China will rebound, while demand from the Middle East is likely to remain robust on the back of higher global oil prices.

ETF stocks are expected to continue to fall but remain near historically high levels, which will also put pressure on the price of gold.

On the positive side, central banks continue to add gold to their reserves, especially in Turkey and Egypt.