Could the price of gold end strong as the markets enter the last full week of the year?

Welcome to Kitco News’ 2023 Forecast series. Uncertainty continues to grip financial markets as central bank monetary policies push the global economy into recession to calm inflation. Stay tuned to Kitco News to learn from the experts on how to navigate the turbulent financial markets in 2023.

(Kitco News) The hawkish Federal Reserve pushed gold below $1,800 an ounce, but the precious metal has begun to correct gains heading into the weekend. Analysts warn of additional volatility during the last full week of the year.

The big news that is still being digested by the Fed markets is a strong message from the Fed, with rates peaking above 5% next year. The median forecast for next year shows rates could rise to 5.1%, with Fed Chair Jerome Powell saying rates will stay there “for some time.”

Despite cooler inflation numbers from November, the Fed remains on track without indicating any pivot or pause at the start of next year. To the surprise of many on the hawkish side, Powell said Wednesday that rates are not “constrained enough” even after a 425 basis point rally this year.

“It’s not important now how fast we are. It’s very important to think about the final level. And then, at a certain point, it becomes the question of, How long are we going to stay tied up? That becomes the most important question,” Powell said.

For the Fed’s February meeting, markets are looking for a 75% chance of a 25bp hike and a 25% chance of a 50bp hike, according to CME FedWatch.

“[Powell] Downplay the degree of cuts projected in the points chart for 2024, which suggests they won’t ideally cut until they see inflation of 2%, said Chris Weston, head of research at Pepperstone.

In response to the path of tighter monetary policy ahead, gold fell from multi-month highs and fell below $1,800 an ounce. At the end of the week, the precious metal regained some lost ground, with February gold futures trading at $1,799.30, down 0.63% for the week.

“Gold is sending a lot of mixed signals. It seems to like uncertainty and the idea that the Fed is struggling to strike the right balance with raising interest rates. The idea that interest rates are going to stay higher for longer, is very negative for the price of gold in general,” said the metals expert. Precious in Gainesville Coins, Everett Millman, per Kitco News.

The Fed also expects GDP to grow by just 0.5% and core personal consumption expenditures to grow by 3.5% in 2023.

The context of the Fed’s message is also very important to consider. Markets enter the last full week of the year. “We’re entering a period where it’s the last full trading week of the year. Gold is trading fairly volatile,” Edward Moya, senior market analyst at OANDA, told Kitco News.

Moya in the short term is bearish on the price of gold, but in the long term, the outlook is bullish. “We will see gold traders being cautious here. Due to the lack of liquidity, it will continue to be more than just one-way trading and pressure on gold,” Moya said. “Right now, we need to price in more Fed tightening, more ECB tightening, and higher interest rates.”

Moya added that next year gold will become a safe haven. “As we start to see more pressure on cryptocurrencies and more pressure as economic data rapidly deteriorates, gold will start to see more safe haven inflows next year.”

Moya noted that one of the signals to watch is to buy ETFs. “You have to see the trade pick up momentum one by one. First half of next year – I’m gold bullish.”

price levels

Moya indicated that the support for gold next week is at $1,750, and gains are likely to be capped at $1,840.

Millman added that the first resistance is at $1,800 an ounce, and this level will continue to be very stubborn. Meanwhile, the first support is at $1,775. Millman warned that if this level fails, gold could drop to $1,715 an ounce.

data to watch

Tuesday: US housing and building permits

Wednesday: CB US Consumer Confidence, Existing Home Sales

Thursday: US GDP for the third quarter, US jobless claims,

Friday: US PCE price index, US durable goods, and US new home sales