Gold Price Outlook

“Gold prices were in a downward trend during the first half of March with strong jobs data, concerns about inflation flaring up again and thus suggesting higher interest rates to fight inflation, and the Fed tightening policy to cool inflation all weighing on gold prices.

The gold market did a sharp about turn during the second half of March. The collapse of three regional U.S. banks and the demise of Credit Suisse raised concerns in the market regarding contagion from these failures and a fullblown banking crisis. This helped propel gold prices higher as a safe haven asset. Gold prices also were helped by inflation data for February that did not signal any meaningful increase, with some measures of inflation showing weakness; all of this reduced market concerns about the Fed’s need to tighten policy more aggressively.

While the job market remains strong, there have been some signs of weakness that have shown up in recent data. This along with announcements by various major corporations especially in finance and technology about layoffs suggest the U.S. labor market could possibly hit pause on the strong growth that has been observed over the past several quarters. The U.S. jobs report for March will be released on 7 April, which should provide a more wholistic view of the strength in U.S. jobs and wages.

The gold price has risen sharply in recent weeks and is vulnerable to a short term pull back, but the price of the metal remains in an uptrend. The first upside target for gold prices will be the record high $2,078.80 touched on an intraday basis on 8 March 2022. Depending on how conditions evolve over the next several months a break above this levels should not be ruled out.

While CPM holds to its longer term projection of much higher gold prices over the next few years, it also continues to expect weaker economic conditions over the second and third quarters of 2023 that might contribute to a period of gold price consolidation during the next six months or so.

There are several tailwinds to gold prices at this time, which will prevent any sharp and persistent decline in prices. The primary concern in the market is a recession. This fear is based on: • Monetary authorities around the world showing little willingness to pull back on policy tightening. • Recent bank failures and the risk of contagion to other parts of the financial system. • A jump in oil prices in response to supply side factors. • Cracks in the strong jobs market. • International political tensions: Russia-Ukraine war, China and the West.

Despite the various factors mentioned above which risk driving the global economy toward a recession. Central banks remain steadfast at this time about tightening policy further and holding rates steady at least over the next few quarters to make sure that inflation does not flare up once again.
Decisions like the cut in crude oil output by OPEC+ is one such factor that could provide support to inflationary pressures. Central banks have limited ability in influencing the supply of commodities, which further complicates the act of balancing growth and inflation for central banks around the world.

As mentioned in previous editions of this report, interest rates have been raised sharply and rapidly but they are still very low by historic standards. If central banks are to stick to their monetary policy projections, any resulting recession would likely be shallow.

Markets, however, remain on edge, with a steady flow of news and events bolstering concerns of a recession. This will continue to benefit gold prices because of the metal’s place in investor portfolios as a diversifier.”