(Kitco News) With just one week to go until 2023, gold is down just over 1% year-to-date after a highly volatile year that saw the precious metal surge above $2,000 an ounce in the spring and reach lows near $1,630 an ounce in the fall.
February Comex Gold Futures were looking to close Friday at around $1,809 an ounce, up 0.5% on the week.
Gold may have hit a sustainable price low in 2022, according to Bloomberg Intelligence senior macro strategist Mike McGlone. “We see gold as one of the best performers in 2023, particularly if weaker commodities prompt the Federal Reserve to start easing,” McGlone said Thursday.
Gold could top $2,000 an ounce in 2023 and “never look back,” McGlone added. “This is our base case for the precious metal, especially as the Fed shifts from the fastest-speed tightening in 40 years to an easing…Gold has had a better performing hand versus industrial metal since 2006, when the US two-year/10-year curve last recovered from a period of inversion,” he said.
The focus this week has been on digesting the latest data on GDP, the PCE price index, durable goods and home sales.
This week’s data showed that the US economy is ending the year on a mixed note. The housing market generally showed further signs of deterioration in November and durable goods orders data was generally weaker than expected, given the downward revisions to previously released data. That said, consumer confidence data shows consumers are less depressed now than they were a few months ago,” Wells Fargo economists said.
Markets are trying to chart their outlook for early next year, with data showing mixed signs of a slowing economy, easing inflation and a still hawkish Federal Reserve.
This is the puzzle gold is trying to solve as it enters the new year.
“Federal Reserve Chairman Jerome Powell has tried to sell investors on the idea that interest rates will need to be higher for longer than expected to keep inflation under control,” said senior economist Andrew Grantham. of CIBC Capital Markets. “However, financial markets are not buying it, with interest rate cuts still expected for the end of 2023 and bond yields well below their previous highs.”
Powell told markets in December that after raising rates by 425 basis points in 2022, the Fed is still not restrictive enoughand rates will have to stay higher for longer.
But analysts interpret this in different ways. “What higher for longer means is that central banks are likely to react later and less aggressively to downside growth surprises and recession risks than they have in the past, due of lingering inflationary concerns. This new reaction function is the reality that markets are going to have to start buying at some point in 2023,” Grantham said on Friday.
Trend market participants watch how quickly inflation cools and growth slows. “Friday’s data confirmed that PCE inflation fell further in November, and a new series on rent inflation released this week by researchers at the Cleveland Fed adds further weight to our view that the inflation will continue to fall sharply in 2023,” Capital Economics senior US said. economist Andrew Hunter.
This week’s macro surprise was the final reading of Q3 GDP, which posted a growth of 3.2% compared to the previous estimate of 2.9%. The stronger than expected result weighed on gold, pushing prices closer to the $1,800 line.
In the meantime, the Fed’s favorite inflation measure — the annual number of basic PCEs – cooled 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 to be quiet. But the first week of the new year kicks off with several key releases, including nonfarm payrolls, which the Fed is currently watching very closely.
Market consensus calls expect the US economy to add 200,000 jobs in December and the unemployment rate to hold steady at 3.7%.
Other data to watch is the ISM manufacturing and services PMI, which is also scheduled for the first week of January.
“We expect both ISM activity surveys to have fallen in December, indicating a continued slowdown in GDP growth, and we tentatively forecast a 200,000 weaker gain in nonfarm payrolls,” he said. noted Hunter on Friday.
Gold’s technical setup is showing a six-week-old uptrend, according to Kitco senior analyst Jim Wyckoff.
“The Bulls’ next upside price objective is to produce a February futures close above the strong resistance at $1,900.00. The Bears’ next short-term downside price objective is to push futures prices below strong technical support at $1,775.00 First resistance is seen at $1,823.00 and then at This week’s high at $1,833.80 First support is seen at $1,833.00 this week’s low at $1,892.70 then down to $1,882.00,” Wyckoff said on Friday.
Data to watch in the next two weeks:
December 28: U.S. Home Sales Pending
December 30: US unemployment insurance claims
January 4: US ISM manufacturing PMI
January 5: ADP change in non-farm payrolls, U.S. unemployment insurance claims
January 6: US non-farm payrolls, US factory orders, US ISM non-manufacturing PMI
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