Gold is ready to fly or the Fed will clip its wings

Gold is ready to fly or the Fed will clip its wings

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(Kitco News) – After the massive rally in November, we are finally starting to see continued buying. gold As the market price ends the week at a four-month high of more than 1,800 dollars per ounce.

A recurring comment among market analysts is that gold, while not completely out of the woods yet, is currently a “buy the dip” asset. It’s a marked change from the summer when the play “rally sold out.”

The brief squeeze in November, followed by December’s gains, has pushed gold prices roughly into neutral territory for the year, with a 1% loss. For comparison, S&P 500 It has decreased by 17% year-on-year.

For many gold investors, 2022 has been a disappointing year. Despite the extraordinary rise in inflation, investment demand for gold has been weak. Gold’s usefulness as an inflation hedge could not overcome the headwinds of a strong US dollar, which forced the Federal Reserve to raise interest rates the fastest in more than 40 years.

Despite the impact of the gold price, Juan Carlos Artigas, global head of research at the World Gold Council, said the precious metal has performed as a portfolio diversifier.

“Investors with gold in their portfolios in 2022 would have seen better returns, less losses and less volatility,” he said in an interview with Kitco News. We hope it will continue to be so in 2023.”

In its forecast published on Thursday, the WGC said it expects the price of gold to remain relatively stable in 2023 in the face of significant economic uncertainty.

While sentiment in the precious metals space is changing, there is still one final hurdle to overcome. The The Federal Reserve’s final monetary policy meeting of 2022. Next week the US central bank will set the tone for the new year.

The Fed is expected to be less aggressive with a 50 basis point rate hike; However, according to many analysts, the risk to gold is the central bank’s points.

In September, the Federal Reserve raised the Fed Funds rate to 4.6% in 2023; these projections are expected to be closer to 5%, if not higher. If the terminal rate is above 5%, gold prices could see some fresh headwinds as the US dollar rises.

However, on the other side of the argument, analysts say that more aggressive action by the Federal Reserve will only push the economy into a longer, deeper recession.

At the same time, gold is more than the sum of its investment demand. Central bank demand for the precious metal has captured the market’s attention over the past month and we have learned that China is buying again.

Wednesday, The People’s Bank of China announced that it had bought 32 tons of gold in NovemberThis is the first time since September 2019 that it has increased its official reserves.

Some analysts say this is further evidence that the de-dollarization trend continues to gather steam.

“As deglobalisation accelerates, G-10 nations are expected to ‘re-commodify’ and increase gold holdings – the de-dollarization narrative is gaining traction,” said Nicky Shiels, head of metals strategy at MKS PAMP, on China’s reaction. gold purchases

Note: The opinions expressed in this article are those of the author and may not necessarily reflect his own Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee this accuracy. This article is for informational purposes only. It is not a request to exchange commodities, securities or other financial instruments. Neither Kitco Metals Inc. nor the author of this article accepts any loss and/or damage resulting from the use of this publication.

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