Gold: Market Overview and Forecast 2023.

Gold prices reached a historical peak in April this year, almost touching the $2,050 level. At that time, the market was dominated by concerns about US bank bankruptcies and the high probability of the crisis spreading globally. However, US authorities quickly intervened, managing to prevent such an outcome. This factor initiated a decline in the gold market as traders shifted their focus to riskier assets, and a strong rally began in the US stock market.

Key Factors

Gold prices are closely related to several factors. Firstly, traders pay attention to the state of the two largest economies in the world — China and the US. Economic activity in China remains weak; for instance, data published in September confirm that the Chinese economy is far from operating at full capacity. The Caixin Manufacturing PMI is an important economic indicator, and before COVID, it was consistently above 50, indicating expansion. In September, this index was 51.0, up from the previous value of 49.3, but these figures are not optimistic, nor is China’s GDP growth.

If the Chinese economy continues to show low indicators, it is likely to start raising concerns among investors and traders, who are more likely to support assets like gold.

In the US, despite the impressive stock market rally in the first half of this year, which put significant pressure on gold, economic conditions are also not brilliant. The threat of recession remains serious, and traders have become cautious due to the Federal Reserve’s statement that there is an acute need to maintain high rates in the US.

The Federal Reserve’s interest rate hike strengthens the dollar index, which negatively affects gold sentiment. The rate hike also slows down economic activity in the country, and since the Federal Reserve is determined to curb inflation, which still exceeds the target level by double, the central bank has much more to do.

What Determines the Price of Gold Today?

The factors affecting the value of gold today are contradictory. This can be explained by the fact that gold is in demand in various areas:

• Use in industry and jewelry.
• Utilization as an investment instrument.
• Formation of strategic state reserves of precious metal.

Market players’ reactions to the variability of conditions affecting the price are diverse. This leads to the gold market being constantly influenced by numerous, sometimes contradictory, circumstances. Here are just some of them:

• Demand for precious metal from Central Banks.
• The direction of the credit-financial line of regulators and key interest rates.
• Variability of dollar quotations.
• Demand for precious metal in the industry.
• The state of the gold mining industry.

The current price of gold can be determined by each of the listed factors individually or by their combination.

Market Noise

It’s undeniable that economic growth in China has been less impressive than many had hoped. However, the fact is that the People’s Bank of China may be the only central bank that is less concerned about inflation and more focused on economic growth. It has already announced several monetary policy initiatives aimed at stimulating growth by lowering loan rates, and it seems that a number of similar initiatives are in development, as China simply cannot afford a slowdown in economic growth.

This implies a great chance for further consolidation of gold prices or their reduction.

As for the USA, seasoned investors believe that the Federal Reserve is almost done with its hawkish monetary policy.

The Fed is simply trying to manage market expectations, and it is more than likely that there will be no more rate hikes this year. The market assesses the probability of such a decision at only 23.5%. As soon as this noise begins to dissipate, gold prices will rise.

Technical Analysis

*Daily Gold

The price is attempting to break through the upper boundary of the descending channel, from which it has repeatedly bounced downwards. The next important resistance level is the historical level of 1945, which is reflective. Sellers are still strong, so it’s important to watch how the price behaves. If this level is breached, gold can rise to levels 1977 – 1990, however, if this does not happen, the price will return to current levels and lower to 1916.

Conclusion

It is unlikely that the Federal Reserve will raise rates this year, especially if inflation continues to show signs of decreasing, and this means that the price of gold may show growth, even though the rally due to risk appetite may limit the rise. At the moment, investors need to monitor China’s economic activity, the Fed’s decision, and geopolitical tensions.