TDS Says Gold Selloff Not Over, Sees Prices Falling to $1,575 in Q1 2023

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(Kitco News)- The gold market has seen an impressive rally over the past two weeks, with prices near three-month highs and looking poised to test resistance at $1,800 an ounce. But one bank remains bullish on the precious metal throughout 2023.

In his forecast for 2023, Bart Melek, head of commodities strategy at TD Securities, said gold prices fall below $1,600 an ounce in the first quarter of next year. He added that he does not expect prices to rise above $1,800 an ounce before the fourth quarter of 2023, and it will be another year before the precious metal sees $1,900.

Melek said the Federal Reserve’s aggressive monetary policy action, which has been a key factor for gold through 2022, will continue to keep a lid on prices next year. He added that the Federal Reserve is not ready to turn on its monetary policy.

“With inflation still angry, the Fed may have no choice but to maintain a different policy stance for the next twelve months or so. We expect the Fed funds rate to reach 5.50% by mid-2023 and there will be no easing. In late 2023. As a result, expect We see a general lack of investor interest in gold, at least in the first few months of 2023 when rates are still rising,” he said.

“Furthermore, there is a risk that family offices and trading shops will liquidate the large long positions they still have, as it is becoming more and more expensive to hold positions,” he said. “A capitulation or sale of these positions should push the yellow metal into $1,575/oz territory in the coming months.”

TDS has been tactically short gold since late July, adding to its bearish position in mid-September with a target of $1,580 an ounce.

While the Canadian bank expects gold’s recent rally to fizzle out by the end of the year and into 2023, Melek noted that current price action shows how much potential there is in the market once the Federal Reserve begins to reverse rate hikes.

“Gold’s recent response to even weak expectations of a monetary policy pivot convinces us that gold will react ahead of time when the U.S. central bank signals its intention to begin exiting a tighter path,” he said. “The high probability that rates will fall significantly before reaching the two percent inflation target should prompt many investors to buy gold to offset the lack of meaningful real yields on much of the Treasury curve.”

It is not only gold that TDS is coming down in 2023. The bank expects silver prices to drop below $18 an ounce in the first quarter of next year. They maintain this downward outlook despite prices rising nearly 20% over the past month, stabilizing around $21.50 an ounce.

TDS sees silver prices ending around $21 an ounce next year, rising to $23 an ounce by the end of 2024.

However, the bank is not bearish on all precious metals. TDS sees greater potential for platinum due to growing demand and renewed investor interest in the automotive sector.

“While EV penetration is certainly growing, much of the fleet growth is coming through hybrid vehicles, which still use significant amounts of PGM content,” TDS analysts said in the report. “Overall, platinum as a share of total automotive PGM consumption has really been increasing in recent years. At the same time, after two consecutive years of investment outflows, the central bank’s pivot should encourage increased industrial demand and investment demand. .

“The market has already rallied in recent months, but with macro weakness and a tough environment for precious metals still on the cards for the early months of 2023, we would look to buy below $900/oz,” they concluded.

The bank sees platinum prices falling to $875 an ounce in the first quarter of next year, rising to $1,100 an ounce by the end of the year. TDS also sees platinum prices moving above $1,200 by the end of 2024.