Gold prices have actually increased by about 5% since the start of the year. Also, even though the year has only just begun, the bullish sentiment in the market is almost palpable. We’ve only reached over $1,900 for now, but some investors and analysts have already set their sights on the $2,000 goal.
“Investors will flock to gold!”
Some heavyweight market players are jumping on the gold bandwagon as prices rise $300 from November’s two-year low. Nouriel Roubini, CEO of Roubini Macro Associates and Professor Emeritus at the NYU Stern School of Business, says investors will flock to gold because of the 10 ‘mega-threats’ threatening the global economy.
Nouriel Roubini predicts that gold prices will rise to $3,000 by 2028. ‘Dr. “I expect rates of return to be around 10% a year over the next five years,” says Roubini, nicknamed the ‘Apocalypse’.
“A pretty decent time to buy gold”
Along with Roubini, billionaire ‘bond tycoon’ Jeffrey Gundlach says gold is on the rise when prices rise above $1,800. Doubleline CEO says gold is one of his recommendations for 2023. “It’s quite enough time to buy and own gold,” Gundlach says.
Many investors stayed away from gold in 2022 as the Federal Reserve’s aggressive monetary policy stance pushed bond yields to a 12-year high and the US dollar to a 20-year high. But analysts say this trend could reverse in 2023 as the Federal Reserve approaches the end of its tightening cycle.
Analysts say US bond yields have priced the latest Fed Funds rate below 5%, causing the US dollar to slide to a seven-month low this week. Many analysts state that both bond yields and the US dollar have peaked, supporting gold’s rally.
China’s gold purchases continue at full speed
But gold is more than the sum of investment demand. Global geopolitical uncertainty continues to bolster the expensive metal as a critical element in global currency markets. This week, the People’s Bank of China announced that it bought 30 tons of gold in December. This follows the purchase of 32 tonnes of gold in November, the first officially recorded purchase since September 2019.
In a recent report, BNP Paribas market analyst Chi Lo says gold will be an invaluable element in China’s plan to strengthen the international credibility of the yuan and challenge the US dollar’s status as the world’s reserve currency. In her report, Lo highlights the following:
Making the renminbi convertible to gold transforms the currency into a global investmentable asset for foreign renminbi holders and increases their trust and demand for the Chinese currency. A gold-backed petro-yuan does not require full renminbi convertibility to operate. It therefore allows China to simultaneously take control of the capital account and increase the internationalization of the renminbi.
Will the market or the Fed breathe a sigh of relief?
Data showed that US consumer prices fell for the first time in more than 2.5 years in December. Following the information, Fed policy makers expressed relief that at the next policy meeting in February, inflation continued to fall in December, paving the way for a possible step towards a 25 basis point rate hike. TD Securities commodity strategist Daniel Ghali interprets the latest developments as follows:
Gold prices are rising in the wake of the much-anticipated CPI, which the market is well positioned to highlight as another source of buying activity in the gold markets.
“We believe the gold market will take a breather in the beginning until it becomes clear whose claim about the future course of US monetary policy is more inaccurate: the market or the Fed,” Commerzbank analysts wrote in a note. gives its assessment.
“Golden Cross will attract more buys from technical traders”
Gold Newsletter editor Brien Lundin said, “Gold has simply surpassed the $1,900 level. Reaching these large numbers helps attract investors on a trend,” he says. Lundin predicts that the ‘golden cross’ for gold will attract more purchases from tech-oriented traders. Brien Lundin says the dollar is helping below the downtrend and it looks “likely to continue”.
According to Rupert Rowling, market analyst at Kinesis Money, CPI information confirms that inflation is currently on a downward trajectory. But it’s still well above the Fed’s 2% target. Therefore, the analyst expects the Fed to raise benchmark interest rates when the FOMC meets later this month. However, currently the expectation is that the increase will be only 25 basis points.
“Both results would be bullish for gold”
Brien Lundin says there are basically two main ways to monetary policy. After the Fed successfully brings inflation closer to its target level, it pauses and presumably returns. The second way is that the Fed does it near its 2% target without reducing inflation. Regarding the consequences of these two paths, the analyst states:
Both results would be bullish for gold. However, since there will be no rise for stocks or bonds, the latter will be even more. It also said it would attract much more allocations from diversified portfolios. Both fundamentally and technically, this gold rally seems to have some legs. There’s a lot of buying right now. So a pause next week wouldn’t be surprising. But we should not ignore the momentum that the shiny metal is showing right now.