(Kitco News) Gold is considering potentially pulling out $1,800 and having a big 2023, according to Australian Pepperstone.
Gold finally found momentum after seeing seven months of consecutive losses and bottoming out near $1,620 an ounce.
On Tuesday, December gold futures reacted positively to a slower US Producer Price Index and renewed geopolitical tensions after reports that a Russian missile crossed into Poland, killing two people.
“We are seeing signs of consolidation ahead of a potential test of $1,800/04 and beyond. We are happy to have a positive bias, but will reconsider to $1,739 and $1,710,” Pepperstone’s head of research Chris Weston said. “It’s been a frustrating year for gold investors, and there has been an opportunity cost of being long, especially as cash has become a risk-free investment class.”
In the short term, conditions for gold are favorable and December is expected to be “very lively,” according to Weston.
“Looking ahead, we see that implied volatility (priced in the options market) has eased a bit, with XAU 1-month IV at 15.5%, but this seems appropriate with implied volatility across all equity classes.” assets falling recently,” he said in a note Tuesday. “This measure of expected volatility in gold takes into account the US JOLTS Jobs Report (Dec 1 AEDT), the US Non-Farm Payrolls (Dec 3) and the Inflation Report. US CPI FOMC meeting (Dec 15) Either way, even though the market lowers volatility expectations, I see a floor in volatility due to this upcoming Tier 1 event risk, and I expect this period to be come back very lively for gold, as it will be for USD, rates and the NAS100.”
A key factor to watch as markets head to the end of the year is the US dollar, which has recently given room for gold prices to rally after weighing heavily on precious metals throughout 2022.
“Given gold rising against US real rates, we can see that the USD is the key driver, and with wild selling activity taking DXY below 106, XAU has benefited. One can writing a long thesis on the USD, but under the USD ‘smile’ theory, better insight into global growth is certainly helping, particularly with USDCNH coming out so aggressive as China revolves around its plans to Covid; we may also see the end of the Fed’s hike cycle, with many feeling that March 2023 could be the date we have an extended pause in their hike plans,” Weston explained.
A big positive for the gold price is a possible slowdown from the Federal Reserve in December, Weston added. But a lot will depend on the November inflation report, due in December.
“The next US CPI release (Dec 14) will be a blockbuster, not only because we will have the FOMC meeting the next day, but it could confirm that the US inflation rate may be falling not specifically due to tighter financial conditions through QT and rate increases and that still needs to fuel the real economy but there is a belief that while supply chains are easing high prices are feeding themselves , and inflation is falling on more organic factors (high prices are the cure for high prices) a factor that could be confirmed in the US CPI report for November, and could dramatically increase the need to make a pause on hikes after we see a 50bp December FOMC, gold positive,” Weston said.
According to CME’s FedWatch tool, markets are pricing in an 85.4% probability of a 50 basis point rate hike in December, a slowdown from the 75bp pace used over the last four meetings.
“Gold futures positioning is net short, and options bias is neutral: we are heading into a seasonally strong time to be long US stocks. An open mind pays, and clearly, if the November CPI print goes well, then gold could be affected, but that’s weeks away,” Weston said.
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