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Gold prices seeing their best start to the year since 2012, flirting with a technical bull market

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Welcome to Kitco News' 2023 Outlook Series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into a recession to cool down inflation. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2023.

(Kitco News) - The gold market has reached a significant milestone as prices overnight climbed above $1,940 an ounce, pushing it briefly into an official bull market.

While gold is slightly down from its overnight highs, prices are up nearly 20% from their two-year lows seen in November. February gold futures last traded at $1,938.70 an ounce.

Along with its bull-market status, so far, the precious metal is up $100 in the first month of 2023, its best start to the year since 2012.

According to analysts, gold's renewed momentum comes as bond yields remain subdued and the U.S. dollar continues to trade at a seven-month low.

Analysts note that shifting interest rate expectations continue to weigh on the greenback. The U.S. dollar index continues to hover at its lowest point in seven months at 102 points. Markets have all but fully priced in a 25-basis point hike from the Federal Reserve next month.

"The yellow metal is finding fresh demand from traders and investors seeing an improved outlook as last year's headwinds, from rate hikes to rising yields and dollar, become tailwinds as rate hikes eventually pause while yields and the dollar softens amid concerns about the economic outlook," said Ole Hansen, head of commodity strategy at Saxo Bank, in a note Tuesday.

Hansen added that he sees potential for higher prices as gold has historically seen significant rallies following a peak in interest rates.

"The market is currently forecasting one or two further U.S. rate hikes before pausing at or below 5%. Should history repeat itself, gold may have a significant further upside," he said.

Although $1,940 is proving to be slightly sticky resistance for gold, Jeremy Naylor, market analyst at I.G., said that if prices do break, there is not much holding it back from its all-time highs.

"We're quite a way from there, but certainly, in some people's eyes, that's the price target to go for," he said in a report.

Lukman Otunuga, senior research analyst at FXTM, said that he is watching resistance at $1,950 an ounce but added that the precious metal has some significant momentum.

Swiss pension fund increasing its exposure to gold following dismal bond, equity performance in 2022

"The precious metal certainly remains on a roll, securing five consecutive weekly gains, and could push higher if the fundamental drivers remain unchanged. A weaker dollar and soft U.S. economic data could further sweeten appetite for gold over the next few days," he said.

Although gold prices are in a technical bull market, some analysts note that it is becoming technically overextended and some consolidation at current levels could be healthy.

Hansen noted that one factor holding back the gold market remains subdued demand for gold-backed exchange-traded funds.

"We have yet to see demand for ETFs recover with total holdings still near a two-year low around 94 million ounces, having seen no pick up during the mentioned 320 dollar rally," he said. "Traders' conviction at the beginning of a new trading year always tends to be low for fear of catching the wrong move. At the same time, however, the fear of missing out [FOMO] can also drive a rapid buildup in positioning which subsequently can be left exposed should a change in direction occur."

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.