Gold Price Outlook – August 2023

“Gold prices rose over the course of July, after falling in May and June. Data released during July showed that much of the global economy was holding up fairly well despite the monetary policy tightening that was undertaken over the past year as well as the withdrawal of fiscal stimuli.

What helped move gold prices higher during July was the ongoing softening in inflation data, which suggested to markets that central banks could bring inflation under control with limited to no future tightening in monetary policy. This expectation that monetary policy is unlikely to be tightened further helped gold in July, with prices recovering around 60% of the losses that occurred over the course of May and June.

Markets will continue to keep a close eye on inflation and economic growth indicators. If the current trend of softening inflation and healthy economic growth continues, gold prices will likely move in a sideways fashion between $1,900 and $2,000. If economic growth holds up but is accompanied by plateauing or rising inflation, there could be renewed expectations of monetary policy tightening which could cause gold prices to soften.

On the other hand, if economic growth softens and inflation softens too, market expectations would once again revert to thinking in terms of a monetary policy pivot, which could help gold prices rise. Unless there is a severe deterioration of economic conditions over the next couple of quarters, which is a low probability outcome, central banks are not expected to loosen policy. That does not necessarily mean that the market would shy away from pricing in such a pivot, even if based solely on wishful thinking.

The most likely outcome in CPM’s view for gold prices over the next few months is for prices to move sideways, with a downside bias. Seasonal weakness in the gold price still is in effect and should continue to act as a headwind to prices, possibly into September.

On the downside, gold prices have initial support at $1,950 and then $1,900 and $1,880. For prices to break these levels to the downside it would take renewed concern about monetary policy tightening. While inflation has been softening, to a large extent due to the removal of supply chain bottlenecks, there are various risks which could still prevent inflation from softening or even cause it to rise. If inflation shows signs of stagnating or rising, central banks around the world are quite likely to further tighten policy.

While renewed inflation could cause markets to think about tightening monetary policy, which would weigh on gold, several investors also think about gold as an inflation hedge, which could act as a support to gold prices. That said, expectations of monetary policy have the more pronounced impact on gold prices and forecasts for further tightening would cause gold prices to sink. In such a scenario gold price could fall at least toward $1,800.

The more likely price forecast for gold in the coming months is for gold to move in the lower end of the $1,900 to $2,000 price range, with some potential to test $1,880. Prices are expected then to strengthen during the last quarter of the year, hovering around $2,000.”