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What is in store for gold prices?

Commentaries & Views

Gold traders are somewhat nervous as the first trading day of the second half of this year begins today. So far, gold prices are up nearly 2.6% YTD, and if you look at the performance for one year, it is up nearly 3.19%. Traders are wondering if the price will experience more retracement in 2023 or if we will see another high in 2023.


Gold prices formed their all-time high back in April this year and nearly touched the level of $2050. At the time, there was a lot of pessimism in the market about the banking turmoil in the US and a strong possibility of further contagion taking place in the rest of the world. However, the US lawmakers acted quickly to contain the crisis and executed the right policies to stop the event from becoming any bigger than it was. This particular factor started the sell-off in gold prices as gold traders shifted their exposure to more riskier assets, and we saw a strong rally in the US equity market.

Important Factors

Gold prices are closely tied to a number of factors that really govern the price of gold. Firstly, traders pay attention to the health of the two biggest economies in the world, which are China and the US. The economic activity in China is still very subdued; for instance, if we pay attention to the Chinese Caixin Manufacturing number that was released today, it still confirms that the Chinese economy is far from firing on all cylinders. The Chinese Caixin Manufacturing PMI is a highly important economic number, and before COVID, this number was easily used to print numbers that were comfortable above the reading of 50, a level that separates between contraction and expansion. Today, this number printed a reading of 50.5, which was less than the previous reading of 50.9. In addition, the GDP growth numbers in China are still very lacklustre.

Now, if the Chinese economy continues to underperform, it is highly likely that it will trigger a sense of caution among investors and traders who are more likely to back riskier assets such as gold.

In the US, despite a stellar rally in the equity market for the first half of this year, which took a huge amount of like out of gold prices, the economic conditions aren’t really stellar. The threat of a possible recession taking place is still very much on the cards, as traders have grown a bit more cautious due to the new narrative of the Fed, which believes that there is a strong need for further rate hikes in the US. An increase in the interest rate by the Fed strengthens the dollar index, which adversely influences the price of gold. In addition, an increase in the interest rate also slows down economic activity in the country, and as the Fed is determined to tame inflation, which is still running twice as fast as the Fed’s desired target level, it means that the Fed still has more wood to chop.

Filtering The Noise

There is no denial in saying that economic growth in China has been less admirable than many investors had hoped for. But the fact is that the PBOC is possibly the only central bank that is least worried about inflation and is more focused on growth. It has already announced a few monetary policy-related initiatives to promote growth by cutting lending rates, and there is a strong possibility that there are a number of other similar initiatives in the pipeline to promote economic growth as China simply cannot afford slower economic growth.

This means that there are greater chances for a further consolidation or a move to the downside for gold prices when it comes to Chinese economic growth and risk-off trade.

As for the US, smart money believes that the Fed is very much done with its hawkish monetary policy rates. It is only using its language to manage market expectations, and in reality, it is more than likely that we will only get one more rate hike this year instead of two. Currently, the market is expecting two more interest rate hikes from the Fed, which means the current strength in the dollar index has a lot of noise baked into it. Once this noise begins to filter out, we could see more strength in the gold price.

Threats to the Gold Price

The first and foremost one is economic activity and risk sentiment among traders. If the US avoids an economic recession and the risk of a rally continues for the remainder of this year, we would see more steam coming from the gold price.

Geopolitical tensions are an important factor to keep an eye on. Currently, the market isn’t expecting any significant escalation of tensions between the US, Russia, and China. But the US relationship with Russia and China is of a highly sensitive nature, and any adversity in this relationship could massively support the gold price.

Price Levels
Speaking from a technical price point perspective, the immediate support level that traders will be watching for the rest of this year will be $1,800, and a break of this level is more than likely to open the floor for the price to move to the next level of $1,600.

As for the upside move, the price point that everyone will be watching will be this year’s high, which is also the all-time high. A break above that price point could make the gold price move towards $2,300 and, from there on, the price level of $2,500.

Source: AvaTrade


I do think that the Fed will not increase the rates two more times especially if inflation continues to tame and this means that gold price could experience another bull run even though risk-on rally may keep a cap on this run. Chinese economic activity and geopolitical tensions are important factors for investors to keep an eye on.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.