Gold Price Outlook – October 2023

“Over the course of the summer gold prices moved in a mostly sideways fashion. Prices broke out to the downside of their summer range during the third week of September. Prices fell alongside various other markets, from stocks and bonds to commodities, as investors priced in the Fed’s fresh Statement of Economic Projections, which showed interest rates higher for longer. The consequent rise in bond yields and the U.S. dollar pushed gold through some key support levels resulting in gold prices falling to a six-month low, at the time of writing this report.

While there is still potential for prices to soften further over the next few weeks, prices should regain their footing during the last two months of this year and are expected to rise once again, as various fundamentals support stronger gold prices.

On the downside gold prices have initial support around $1,820 and then $1,790. While the most likely scenario is for prices to consolidate around these levels and then rise, a decline to $1,680 or even $1,620 can not be completely ruled out. Weakness to these levels is likely to occur if economic growth in the U.S. shows no signs of slowing during the fourth quarter of this year and inflation begins to rise in a sustained fashion, forcing the Fed to adopt a more hawkish monetary policy than it currently projects.

This is not CPM’s most likely scenario. While recessionary conditions are not expected to develop until late next year, economic growth is expected to face headwinds as tighter monetary policy begins to have a more pronounced effect on economic growth. In addition to monetary policy risk to growth there also is a lot of political risk which could adversely affect economic growth and stimulate investor interest in gold.

The current weakness in gold prices is also likely to draw the attention of central banks which are looking to buy gold for their reserves. These entities were net buyers of gold in a higher price environment earlier this year, so the softness in prices is likely to be an even more attractive proposition to these banks.

During the first eight months of 2023 central banks were net buyers of 7.35 million ounces of gold. If central banks continue at their current pace of net purchases, they could be on track to add around 11 million ounces of gold to their holdings this year. If central banks pick up their pace of purchases amid the softer gold price environment, net purchases for the year could be even higher. The net purchases figure actually has been restrained by relatively large sales in the early part of this year by Turkey, Kazakhstan, and Uzbekistan, all three of which sold gold to raise foreign exchange they needed in the face of higher imports. This level of central bank gold demand should be supportive of gold prices, offsetting any potential weakness in investment demand from short-term investors.

The increase in gold prices projected for later this year is expected to face initial resistance around $1,900 and then $1,950.”