Gold's ticket to $2,000 is U.S. recession and it's looking more likely, says Bloomberg Intelligence
(Kitco News) Gold's best chance to get to $2,000 an ounce this year is for the U.S. economy to fall into a recession — a scenario that looks more likely due to the Federal Reserve's stance, according to Bloomberg Intelligence's March outlook.
Surprisingly strong economic indicators at the start of the year were not convincing enough for some analysts to immediately rule out a recession.
And markets got spooked by solid employment, stubborn inflation, and robust retail sales and PMI data from January. The fear is higher-for-longer interest rates and the Fed reverting back to 50-basis-point hikes.
In its latest March outlook, Bloomberg Intelligence warned that copper and other industrial metals would outperform gold this year if the U.S. manages to avoid a recession. But this scenario is an unlikely one since the Fed is remaining aggressive.
"The greatest potential for economic contraction from the yield curve in about 30 years and the Federal Reserve still tightening could guide most metals lower and gold higher in 2023," Bloomberg Intelligence senior macro strategist Mike McGlone said Thursday.
Gold is in an enduring bull market despite prices falling in February, McGlone pointed out. Spot gold is down more than 5% in the last 30 days. But the decline comes after the precious metal saw its best start to the year in over a decade. April Comex gold futures were last at $1,830.70, down from this year's peak of around $1,960 an ounce.
The precious metal could be ready to resume its rally soon, but the critical catalyst needed to trigger that is a recession.
"A U.S. recession is a top catalyst that may push the metal's price above $2,000 an ounce," he wrote. "Based on the highest probability of recession from the three-month to 10-year Treasury curve in our data base since 1992. A key factor that may be different this time is the easing from the Fed that markets were accustomed to until the inflation of 2022."
This scenario would see gold continue to outperform other metals in 2023. "One of the best performers on a 12-month basis, the precious metal may be sniffing out an eventual Fed pivot due to recession," McGlone noted.
A U.S. recession and higher gold prices are still Bloomberg Intelligence's base case for this year.