(Kitco News) Gold could be the top commodity performer in 2023 as central banks shift to easing after their aggressive tightening cycles that defined this year and limited gold's price action, said Bloomberg Intelligence in its outlook.
"Our base case is toward a global deflationary reset that will shift central-bank tightening to easing, underpinning gold," said Bloomberg Intelligence senior macro strategist Mike McGlone. "Gold appears poised to be a top commodity performer in 2023 if the world enters a recession."
Gold has formed a good foundation between $1,600 and $1,700 an ounce as the Federal Reserve proceeded to hike rates in its most aggressive tightening cycle in about 40 years. But that is likely ending soon, leading to a softer U.S. dollar in the future, noted McGlone.
There is also a growing disparity in gold priced in U.S. dollars versus gold priced in euro and yen, which could be taken as a positive sign for the precious metal, McGlone said.
"The disparity between gold priced in dollars and euros is nearing levels that formed a lasting foundation for the prices in 1999. Down about 5% in 2022 to Nov. 28, dollar gold compares with respective gains of 5% and 15% for the metal priced in euros and yen," he said. "Aggressive Fed tightening to address inflation and elevated asset prices as the rest of the world tries to catch up -- which is supporting the greenback -- echoes trends about two decades ago. Underpinnings are firming for the price of gold to resume the rally that started with that base."
The big risk to gold would be a surprise recovery in economic growth, potentially triggered by China. That would be beneficial to industrial metals but not gold, McGlone noted.
But the overall outlook is not too favorable for industrial metals in 2023.
"Along with the declining stock market in 2022, copper and industrial metals are reflecting risks of diminishing global economic growth in 2023," McGlone described. "Rising inflation in 2022, spiked by commodities due to Russia's invasion of Ukraine, accelerated central-bank tightening trajectories, which may result in a more enduring global recession."
