Gold has struggled at the end of the year, with the precious metal experiencing a downturn lately. However, most market players and analysts expect gold to rally in 2023.
According to analysts at Goldman Sachs, commodities are likely to be the best performing asset class in 2023 amid limited supply and underinvestment. The situation in the precious metals markets would likely stabilize in the first quarter of 2023, with occasional volatility spikes. However, commodities will likely be supported by investors shifting towards safe haven assets, including gold. The bank's report predicts the commodity market will begin a new "supercycle" next year and that bullish sentiments will predominate in the precious metals market next year.
Gold had a series of ups and downs this year, and always managed to recover after dropping to its lows. In March 2022, the precious metal hit an impressive $2,000 per ounce, only to tumble to its 18-month low of $1,619 in the third quarter. Now, as the end of 2022 approaches, gold is trading near $1,800, the price it had at the beginning of the year. Analysts expect the precious metals to hit new highs next year.
This year, investors have preferred to invest into gold as a defensive asset. This pushed the precious metal upwards, but its upsurge was ended by rising US dollar. A stronger dollar is a negative factor for gold.
Gold steadily rose last week and it may increase in the near future thanks to the Santa Claus rally, analysts say. Market players continue to assess financial market prospects and pay close attention to risk appetite. The US consumer confidence data for December and PCE index for November will likely be crucial for the precious metal. If these data releases are negative and gold declines, a Santa rally could follow. Rising US stock indexes will push XAU/USD up, analysts note.
Market participants are awaiting the CB Consumer Confidence index report, which is due on Wednesday, December 21. The index previously rose to 7.2% in November from 6.9% in October. If the index moves up, it will boost the yield of US Treasury bonds and put pressure on gold, experts say.
Early on Tuesday, December 20, gold remained near about $1,800 per ounce. According to analysts' estimates, its price has remained almost unchanged since the beginning of this week. So far, the XAU/USD pair has been trading at $1,793.62 per ounce, trying to consolidate at current levels. At the same time the price of February gold futures on the NYMEX increased by 0.07% to $1,798.90 per ounce.
Another anticipated data release this week is the PCE report by the US Bureau of Economic Analysis. Preliminary data suggests that core PCE will rise by 0.4% m/m. If the index noticeably decreases, gold may get stronger. However, rising core inflation could have the opposite effect and put pressure on XAU/USD, analysts warn. At the same time, lower-than-expected inflation in the US will have a negative impact on USD. In such a situation, the precious metal could again test $1,800 or higher, economists at ANZ Bank believe.
Lower inflation in the US triggered a USD sell-off and boosted the price of gold. However, US inflation is now holding above the target level of 2%, so the Fed might turn to dovish rhetoric to stabilize the situation. Gold could take advantage of the uncertainty over the regulator's monetary policy and advance further before the December FOMC meeting results are tallied. According to the latest data of the U.S. Commodity Futures Trading Commission (CFTC), the number of long Gold positions reached 115,100 by mid-December 2022, compared to 110,000 a week earlier. As a result, analysts recommend to hold long positions, targeting $1,810.
An outlook by the World Gold Council sees gold encounter both tailwinds and headwinds in 2023. Among these factors are the following:
1) A mild recession and decreasing US dollar combined with lower inflation, which would support gold.
2) Geopolitical unrest, which will keep the demand for the precious metal high.
3) Increased economic growth in China, which will increase consumer demand for the precious metal.
4) Pressure on commodities amid a slowdown of the global economy will become a restraining factor for gold prices in the first half of 2023.
Current expectations of market participants regarding gold's performance in 2023 will be determined by monetary policy of central banks. If monetary policy is tightened by regulators, it will lead to a large-scale economic downturn. This will lead to increased interest in gold, boosting its price. According to economists of ANZ Bank, the precious metal will advance next year, reaching $1,900 per ounce by the end of 2023. In the second quarter of next year analysts expect global economic growth to slow down amid rising geopolitical risks. In such a situation, investors will shift massively to gold, traditionally regarded as a safe asset. This will cause gold prices to skyrocket, the bank concluded.