Gold Price Outlook

“Gold prices remained weak during October. CPM expected an uptick in gold prices as the current calendar year drew to an end, for a variety of political and economic reasons as well as due to seasonal strength in fabrication demand, investment demand and prices. This strength seems to have started playing out, with a sharp increase in gold prices during the last several trading days. While gold prices are likely to strengthen further from here, the gains are likely to be moderate, with monetary policy expected to continue to be tight, even if at a slower pace than seen in recent months, and to remain tighter for longer than what most market participants seem to have been expecting.

The gold market seems to have a lot of people wishing for if not actually expecting the Fed and other monetary authorities to ‘pivot’ to lowering interest rates almost immediately for the past several months. The broader financial market has been less inclined to expect that. The CME Fedwatch tool has a consensus that rates will rise into March and then plateau through November 2023, only starting to decline in 0.25% increments next December.

Monetary policy takes several quarters to start showing an impact on economic activity and while there have been and will continue to be sporadic signs of weakness in both economic growth and inflation, economic data does not suggest that these trends have taken hold. Until there is confirmation that these trends of softer economic growth and inflation have taken hold, the Fed is likely to keep monetary policy tight. Nonetheless, short term market moves to the upside will be driven by any signs of weakness in economic data, which markets will take as a sign for the Fed to be less hawkish. Additionally, while increases in the Feds Funds Rate and its terminal level gets a lot of attention, there also is the ongoing reduction in the size of the Fed’s balance sheet, which is also adding to monetary policy tightness.

While monetary policy is expected to act as a headwind to gold prices in the coming months, there also are various political issues around the world which are expected to be negative for economic growth and consequently positive for gold. These issues span across the globe from China, Russia, continental Europe, the U.K. to the United States. Just the countries listed here alone account for around 65% of global GDP. The political issues within the borders of these countries as well as the deterioration of cross border relations between many of these countries have the ability to seriously weigh on global economic growth be it by depressing trade or fanning the flames of inflation.

Gold prices are expected to move between $1,635 and $1,825 during the coming months as various factors push and pull gold prices. As can be seen from the range however, the bias over the next few months is tilted to the upside.”