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Gold to leave behind its $1,700-$2,000 range, eyes on gold-copper ratio as Fed pivots

Kitco News

(Kitco News) Gold is gearing up to leave its $1,700-$2,000 an ounce range as the Federal Reserve sets the stage for a pivot at some point this year, according to Bloomberg Intelligence.

"It's the inevitable Fed pivot that we expect to launch gold out of its about $1,700-$2,000 an ounce range since 2019. Continuing the current trend in downward revisions of global economic growth and/or a drop in the copper price are prime candidates to curtail central-bank rate hikes," said the firm's senior macro strategist Mike McGlone.

In his latest analysis, McGlone looked at the copper-gold ratio and the U.S. treasury yields curve to get more insight into the precious metal.

"What's been consistent in the gold/copper ratio is buoyancy, when the inverted U.S. two-year/10-year curve recovered from similar extremes as now," he said in a recent note. "Copper's about 10% bounce in 2023 to Jan. 12 may be fleeting, facing diminishing global growth, central-bank restraint and repercussions from last year's rate hikes."

Gold is currently the top candidate to outperform copper, especially when the Fed pauses or starts cutting rates in 2023, McGlone pointed out. At the time of writing, February Comex gold futures traded at $1,906.40, down 0.18% on the day. 

This comes after copper rose to new highs in 2022 while gold lagged due to the aggressive monetary policy tightening cycle and a strong U.S. dollar.

"Base metals outperforming broad commodities is normal in tightening periods … The recent rate spike may be more offsides than the short-lived tightening period to the 2019 high," McGlone added.

Looking at the historic tightening cycle of 2022, McGlone pointed out that the repercussions are just beginning to roll in.

"Upside potential in rates and industrial metals may be limited as China's reopening faces a severe property crisis, autocratic rule more akin to North Korea vs. Singapore and a world heading toward recession," he noted.

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