With gold ending the week above $1,900, analysts turn their attention to $2,000

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Welcome to the Kitco News Outlook 2023 series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into recession to cool inflation. Stay tuned to Kitco News to learn from the experts on how to navigate the turbulent financial markets in 2023.

(Kitco News) – The gold market is ending the week at a nine-month high as renewed safe-haven demand pushed prices above $1,920 an ounce, which some analysts have highlighted as a major resistance level. .

Analysts have said that growing economic uncertainty and changing market fundamentals could help prices return to $2,000 sooner than expected.

February gold futures are looking to end the week up about 1%, with prices last trading at $1,922.80 an ounce.

“There is a gravitational pull towards $2,000 and it will only increase as prices continue to rise,” said Phillip Streible, chief market strategist at Blue Line Futures.

Gold’s late-afternoon rally came after US Treasury Secretary Janet Yellen sent a letter to Congress warning lawmakers the government could hit its debt limit on January 19.

Growing fears that the US could default on its debt obligations have increased recently, as the slim majority of the Republican Party in the US House of Representatives is expected to complicate negotiations. Some Republican politicians have already said that any increase in the debt limit must be accompanied by deep spending cuts.

“We knew the debt issue was going to be a problem in 2023, but we didn’t expect it to become prominent so soon,” said Edward Moya, senior North American market analyst at OANDA. “Gold’s short-term reaction is justified, given the uncertainty that currently exists.”

However, Moya added that while near-term safe-haven demand should continue to support gold prices, there are much larger factors affecting the gold market.

“It’s too early to see how this will play out. In the short term, it’s positive for gold, but if there’s a lot of chaos, that would support the dollar and weigh on gold,” he said.

Moya said that for gold he sees some resistance at $1,950 an ounce, and if that is broken there is not much to stop the market from rallying back to $2,000 an ounce.

“There’s a lot of momentum in the market right now and I think $2,000 is a target, it’s just a matter of when we get there,” he said.

Federal Reserve Monetary Policy Remains Critical Driver for Gold

Looking beyond near-term volatility, analysts have said the most significant influence on gold remains changing expectations for the Federal Reserve and the impact lower inflation is having on bond yields. bonds and the US dollar.

Consumer inflation data last week showed that price pressures are cooling in line with expectations, which some analysts say gives the Federal Reserve room to slow the pace of its aggressive policy stance. monetary.

According to CME’s FedWatch tool, markets see a greater than 90% chance that the US central bank will raise the federal funds rate by 25 basis points next month.

Investors anticipating that the Federal Reserve is closer to the end of its tightening cycle have pushed bond yields lower and weighed heavily on the US dollar.

The US dollar index is looking to end the week at its lowest level in seven months as it tests support at 102 points.

Kevin Grady, president of Phoenix Futures and Options, said investors are seeing a fundamental shift in financial markets, supporting gold prices even as market momentum appears technically overstretched.

“I’ve been waiting for a fundamental change in the market and I think we’re starting to see it,” Grady said. “The bond market is signaling that interest rates will be lower than what the Fed says and that’s bullish for gold.”

Pay attention to the US dollar; seems oversold

Although gold prices have room to rise next week, some analysts have said that investors should exercise some caution at these levels and not chase the market.

While many analysts are solidly bullish on gold in the near term, they have said investors should look to buy the precious metal on dips.

Darin Newsom, a senior market analyst at Barchart, said he sees gold prices higher as the short- and medium-term trends are decidedly up.

However, he added that bullish investors might have to be nimble as gold could correct itself quickly. He said the key to gold’s near-term momentum will be the US dollar, which he said is heavily oversold. He noted that 102.17 is a major retracement level from last year’s historic rally.

“When [gold] decides to change, and it could be sometime next week, it could drop quickly,” he said. “Markets go up the stairs and down the elevator.”

Marc Chandler, managing director of Bannockburn Global Forex, said he also believes the US dollar is oversold. He noted that although inflation is cooling off, the Federal Reserve is still expected to raise interest rates, which could help stem the dollar’s downward momentum.

Davos and economic data to follow

Although the US will see a shorter trading week with markets closed on Monday for Martin Luther King Jr. Day, there will be plenty of economic data to digest throughout the week.

Analysts have said the market could be sensitive to comments made during the annual World Economic Forum, which begins in Davos next week. The WEF has already expressed concerns about growing geopolitical uncertainty and the continuing threat of inflation. Analysts have said any gloomy outlook could further boost gold’s safe-haven appeal.

The markets will also receive more retail sales numbers, inflation data and regional manufacturing numbers from the New York Federal Reserve and the Philadelphia Federal Reserve.

Economists have also said that investors should keep an eye on the Bank of Japan’s monetary policy decision as it could provide a boost to the US dollar, which in turn would weigh on gold.

Tuesday: Empire State Manufacturing Index, Bank of Japan Monetary Policy Decision
Wednesday: PPI, Retail Sales
Thursday: Philadelphia Fed Survey, Weekly Unemployment Claims, Home Starts, and Building Permits
Friday: Existing Home Sales

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of 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 such accuracy. This article is strictly for informational purposes only. It is not a request to make any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept responsibility for loss and/or damage arising from the use of this publication.

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