US economic information reinforced expectations for a less hawkish Fed. As such, it mislead gold for its third consecutive weekly rise. Gold prices rose 1.8% on Friday as Treasury bond yields and the dollar fell.
“We haven’t seen a lot of information that would change the Fed’s side”
Spot gold rose 1.8% to $1,865.5. Prices are up around 2.4% so far this week, hitting their highest level since the week of December 2. US gold futures were up 1.58% to $1,869. David Turns out, head of metals trading at High Ridge Futures, comments:
We saw some sort of Goldilocks number in the employment report this morning. So, we encountered a slightly above-expected headline number of jobs. However, we also witnessed a slowdown in the price increase. I don’t think we’re seeing much information here that would change the Fed’s side. Clearly, the market is more focused on the idea that we are nearing the end of these federal funds rate hikes today.
“Gold and the general market seem to be breathing a sigh of relief”
The US Department of Labor reported that non-farm employment increased by 223,000 in December. In addition, US services segment activity contracted for the first time in nearly three years in December, providing evidence of declining inflation. The dollar index, which supports gold, fell 0.7%. Also, benchmark Treasury yields are near a two-week low. Jim Wyckoff, senior analyst at Kitco Metals, says gold could continue to see sideways in the first quarter after seeing renewed interest in the long-term from hedge funds at the start of the new year. Wyckoff also draws attention to the following issues:
GoId and the overall market seem to be breathing a sigh of relief as the jobs report isn’t stronger than expected. This may have caused the Fed to be even more aggressive in its monetary policy tightening mission.
“Symptoms point to higher gold prices this year”
Edmund Moy, former director of US Mint, says gold has “noticeably” gained about $200 from November to the end of last year. It also says that this trend continued in the first few days of January 2023.
The relative strength of the US dollar and high interest rates put pressure on gold. But Moy, who is also a senior IRA strategist for gold and silver trader U.S. Monetary Reserve, says the dollar has weakened since November and the Federal Reserve’s rate hikes are starting to be restrained, triggering gold’s upward move. In this context, Moy makes the following statement:
Whether this year is a soft or hard landing for the US economy, the global economy is shaping up to have a worse year than last year. GoId often rises during a calm, high inflation or economic uncertainty.
In a recent interview with CBS Sunday morning news program Face the Nation, International Monetary Fund Leader Kristalina Georgieva said the IMF expects one-third of the world’s economy to go into recession this year. Based on his experience as a US Mint manager during the 2008-09 financial crisis, Moy believes signs point to higher goId prices this year. Accordingly, he says he wouldn’t be surprised if gold breaks new records by surpassing $2,100 or more.
Gold could benefit from recession
GoId typically sees profits in January, according to Adrian Ash, head of research at BullionVault. Ash says precious metals could benefit as investors use early January to review their portfolios and rebalance their bullion, stock and bond holdings. In this context, Ash makes the following statement:
This month may also bring heavy demand to invest in gold. Because, looking at the next 12 months, both wealth managers and private savers are focusing on the potential risks in their money. So it makes sense for them to choose to buy a little investment insurance for the enclosure. Given goId’s early year profits, many analysts may need to reconsider their 2023 projections now.
In a survey conducted before Christmas, BullionVault users predicted a gold price of $2,012.60 for the end of 2023. Also, about 38% of the 1,829 full considerations point to the need to diversify risk and diversify users’ broader portfolios as the most valuable reason to invest.
“Nothing is impossible in the golden world”
Looking ahead, however, the US dollar will be key to gold’s performance this year. George Milling-Stanley, chief gold strategist at State Street Global Advisors, says the dollar fell more than 4% in November, showing its worst monthly performance in more than a decade. This puts pressure on gold prices in dollar terms. He notes that goId has nothing to fear from a rise in interest rates. What matters, according to the analyst, is the impact of rate increases on the dollar’s value. If the dollar has peaked, he expects gold to rise above $2,000 again this year.
However, some market claims state that prices have gone up to $3,000. While this may be “heroically optimistic,” Milling-Stanley says, “nothing is impossible in the golden world.” Milling-Stanley comments:
History shows that when gold is in a sustained long-term bull trend since the price last touched $250 in 2001, prices tend to rise gradually and consolidate in each phase of the bull walk. This is the most possible for 2023.
“Net goId purchases will be valuable for official reserves”
In the midst of this, Milling-Stanley says net purchases of goId for official reserves will continue to be a “key feature” for the gold market, as it has been for more than a decade. Net purchases of the central bank complex as a whole have averaged between 10% and 15% of total global demand each year since 2011. He also notes that developing country central banks are the biggest buyers. In this regard, he states:
There is every indication that these medical acquisitions will continue, not just in 2023, but into the foreseeable future.
“This is positive for yellow metal”
Data released on Friday also showed that the unemployment rate fell from 3.6% to 3.5%. It also revealed that the hourly price increased by 0.3%. Jeff Wright, chief investment officer at Wolfpack Capital, comments:
Wages increased only 0.3%, or 4.6% year over year. So there is a glimmer of hope in price inflation. Price inflation is a valuable data point for the Fed. Also, compared to other data points, prices are more effective as they are a sticky inflationary measure. So this is positive for gold and there is hope that the Fed will rely more on data to allow the rate of increase in interest rates to decline in 2023. In the credit markets, the probability of a 50 basis point rate hike, followed by a possibly 25 basis point increase, is rising.
Still, Wright believes gold remains ‘range-tied’. He also thinks that he does not expect gold to break much higher and that if it exceeds $1,850, taking profit is possible.
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