The precious metal is leaving behind a very volatile year, hitting over $2,000 in the spring and dropping to $1,630 in the fall. However, with just one week to 2023, gold has lost just over 1% year-on-year.
“Gold will hit over $2,000 in 2023 and will never look back”
According to Bloomberg Intelligence senior macro strategist Mike McGlone, gold may have seen a permanent price floor in 2022. McGlone, in his statement, makes the following assessment:
We predict gold to be one of the best performers in 2023. Especially if the weakening broad commodity market causes the Federal Reserve to start easing. Gold will hit over $2,000 in 2023 and will never look back. This is our base case for the expensive metal, especially as the Fed actually slides from the fastest tightening in 40 years to unwinding… Gold has rebounded from the most recent reversal of the US 2-year and 10-year yield curve.
This week, the focus was on US GDP, PCE, solid consumer goods and home sales information. Now the market is busy digesting this information. McGlone makes the following comment regarding the information:
This week’s information showed that the US economy closed the year on a mixed note. The housing market overall showed signs of further deterioration in November. In addition, the information on good goods orders was generally weaker than expected given the retrospective revisions to the previously announced data. However, data on consumer belief shows that consumers are less pessimistic now than they were a few months ago.
The riddle that gold is trying to avoid as we enter the new year
Markets are trying to create a outlook for the start of next year, with information showing mixed signs of a slowing economy, cooling inflation and a still hawkish Federal Reserve. Andrew Grantham, senior economist at CIBC Capital Markets, comments on the developments as follows:
Fed Leader Jerome Powell is trying to sell investors the idea that to keep inflation in check, interest rates need to be higher for longer than previously assumed. But financial markets aren’t buying it, as the rate cuts are priced for late 2023 and bond yields are well behind their previous highs.
Powell said in December that after raising rates by 425 basis points in 2022, the Fed is still not adequately restrictive and rates should remain high for longer. But analysts interpret this in different ways. In a statement on Friday, Grantham highlights the following:
Higher for longer means that central banks will react later and less aggressively than in the past to downside growth surprises and calm risks due to ongoing inflation worries. This new response function is the fact that markets will have to start buying at some point during 2023.
Technical view of gold price: Bullish
According to Jim Wyckoff, senior analyst at Kitco, the technical structure of gold shows a six-week uptrend. In his statement, Wyckoff draws attention to the following technical levels:
The bulls’ next upside is to close February futures above the solid resistance at $1,900.00. The bears’ next short-term goal is to push futures prices below the solid technical support at $1,775.00. Resistance one is at $1,823.00 followed by this week’s high at $1,833.80. The first pillar stands at this week’s low of $1,792.70 followed by $1,782.00.
Data for markets to watch next week
The trend followed by market participants is how quickly inflation has cooled and growth has slowed. Andrew Hunter, senior US economist at Capital Economics, said:
Data on Friday confirmed that PCE inflation fell further in November. In addition, a new series of rent inflation released this week by researchers at the Cleveland Fed adds further weight to our view that inflation will continue to fall sharply into 2023.
This week’s macro surprise was the final reading of Q3 GDP, which grew 3.2% against the previous 2.9% claim. The stronger-than-expected result put pressure on gold, bringing prices closer to the $1,800 mark. In this midst, the Fed’s preferred annual core PCE fell to 4.7% in November from 5% in October.
The week ahead is a holiday week mid-Christmas and New Year’s, and it promises to be quiet. However, the first week of the new year starts with a few valuable announcements, including the non-farm payrolls, which the Fed is currently watching very closely. Market consensus estimates are on the side of US economics adding 200,000 states in December. In addition, the market expects the unemployment rate to remain at 3.7%. Further information to consider are the ISM manufacturing and services PMI data, again scheduled for the first week of January. Andrew Hunter made the following statement regarding the data on Friday:
We expect both ISM activity surveys to drop in December. This points to a continuing slowdown in GDP growth. In addition, we aim for a softer profit of 200,000 on non-farm payrolls on an intermittent basis.
Weekly information calendar
- December 28: Home sales pending in the US
- December 30: US jobless claims
- Jan 4: US ISM Manufacturing PMI
- Jan 5: ADP nonfarm payrolls change, US jobless claims
- Jan 6: US non-farm payrolls, US factory orders, US ISM non-manufacturing PMI