The price of gold is weighing on incoming data and hawkish Federal Reserve rhetoric as 2023 rapidly approaches

(Kitco News) With just a week left until 2023, gold is down just over 1% year-to-date after a very volatile year that saw the precious metal soar above $2,000 an ounce in the spring and hit lows near $1,630 an ounce in The autumn.

Comex February gold futures were looking to close Friday at around $1,809 an ounce, up 0.5% for the week.

Gold may have set a permanent price bottom in 2022, according to Mike McGlone, chief macro strategist at Bloomberg Intelligence. “We see gold as the best performer in 2023, especially if commodity weakness prompts the Fed to start easing,” McGlone said Thursday.

McGlone added that gold could move above $2,000 an ounce in 2023 and “we never look back.” “This is our fundamental case for the precious metal, particularly as the Fed shifts from the highest velocity tightening period in 40 years towards easing… Gold has had the upper hand in performance versus the industrial metal since 2006, when the US-year curve/10 Years last recovered from the period of reflection.

The focus this week was to absorb the latest GDP, PCE price index, durable goods and home sales data.

This week’s data showed the US economy ending the year mixed. The housing market generally showed further signs of deterioration in November, and data on durable goods orders was generally weaker than expected, when previously released data reversed revisions. With consumer confidence, consumers are less pessimistic now than they were a few months ago,” said Wells Fargo economists.

Markets are trying to make predictions for the beginning of next year, as data shows mixed signs of the economy slowing, inflation slowing, and the Federal Reserve remaining hawkish.

This is the mystery that gold is trying to overcome as it enters the new year.

“Federal Reserve Chairman Jerome Powell has been trying to sell investors the idea that interest rates need to be higher for longer than previously assumed to keep inflation in check,” said Andrew Grantham, chief economist at CIBC Capital Markets. “However, financial markets are not buying it, with interest rate cuts still being priced into late 2023 and bond yields well below their previous highs.”

Powell told markets in December that after raising interest rates by 425 basis points in 2022, the Fed still wasn’t tight enough, and rates would have to stay higher for longer.

But analysts interpret this in different ways. “What ‘higher versus longer’ means is that central banks are likely to react later and with less force to negative growth surprises and recessionary risks than they have in the past, due to persistent inflationary fears. A function of this new reaction is the fact that markets will react,” Grantham said on Friday. You should start buying sometime in 2023.

Trend market participants are watching how quickly inflation subsides and growth slows. “Data released on Friday confirmed that personal consumption expenditures inflation fell further in November, and a new rental inflation series published this week by researchers at the Cleveland Federal Reserve adds further weight to our view that Inflation will continue to decline sharply in 2023.” Andrew Hunter.

The overall surprise for this week was the final Q3 GDP reading, which showed growth of 3.2% versus the previous estimate of 2.9%. The stronger than expected result affected gold, pushing prices closer to the $1,800 line.

Meanwhile, the Fed’s preferred measure of inflation – the annual core personal consumption expenditures figure – eased to 4.7% in November after October’s reading of 5%.

Next week is a holiday week between Christmas and New Years, and it promises calm. But the first week of the new year kicks off with several major releases, including the Non-Farm Payrolls, which the Fed is currently watching closely.

Market consensus calls are for the US economy to have added 200,000 positions in December and for the unemployment rate to remain at 3.7%.

Other data to watch is the ISM Manufacturing and Services PMI, which is also due out in the first week of January.

“We expect both ISM surveys of activity to have fallen in December, indicating a continued slowdown in GDP growth, and we tentatively start posting 200,000-less gains in non-farm payrolls,” Hunter noted on Friday.

Gold’s technical formation has been showing an uptrend for the past six weeks, according to Kitco senior analyst Jim Wyckoff.

“Next upside price target for bulls is a close in February futures above strong resistance at $1,900.00. Next near-term downside price target for bears is to push futures prices below strong technical support at $1,775.00. Resistance seen The first at $1,823.00 and then at $1,833.80 this week, Wyckoff said on Friday. The first support appears at this week’s low at $1,892.70 and then at $1,882.00.”

Data to watch in the next two weeks:

December 28: US pending home sales

December 30: US Unemployment Claims

January 4: US ISM Manufacturing PMI

January 5: ADP Nonfarm Payrolls Change, US Unemployment Claims

Jan 6: US Nonfarm Payrolls, US Factory Orders, US ISM Non-Manufacturing PMI