(Kitco News) With just one week to go until 2023, gold is down just over 1% year-to-date after a very volatile year that saw the precious metal rise above $2,000 an ounce in the spring and hit lows near $1,630 an ounce in the fall.
February Comex gold futures were looking to close Friday at around $1,809 an ounce, up 0.5% on the week.
Gold may have put in an enduring price bottom in 2022, according to Bloomberg Intelligence senior macro strategist Mike McGlone. "We see gold as a top performer in 2023, particularly if weakening broad commodities goad the Federal Reserve to begin easing," McGlone said Thursday.
Gold could move above $2,000 an ounce in 2023 and "never look back," McGlone added. "This is our base case for the precious metal, notably as the Fed shifts from the highest-velocity tightening period in 40 years toward easing … Gold has had an upper-performance hand vs. the industrial metal since 2006, when the U.S. two-year/10-year curve last recovered from a period of inversion," he said.
The focus this week was on digesting the latest GDP, PCE price index, durable goods, and home sales data.
"This week's data showed that the U.S. economy is ending the year on a mixed note. The housing market generally showed further signs of deterioration in November, and data on durable goods orders were generally weaker than expected, when backward revisions to previously released data are taken into account. That said, data on consumer confidence shows that consumers are less downbeat at present than they were a few months ago," economists at Wells Fargo said.
Markets are trying to put together an outlook for the beginning of next year, with data showing mixed signs of a slowing economy, cooling inflation, and a still hawkish Federal Reserve.
This is the puzzle that gold is trying to get ahead of as it enters the new year.
"Federal Reserve Chairman Jerome Powell has been trying to sell investors a notion that interest rates will have to be higher for longer than previously assumed to keep inflation under control," said CIBC Capital Markets senior economist Andrew Grantham. "However, financial markets aren't buying it, with interest rate cuts still being priced in for late 2023 and bond yields well off their earlier highs."
Powell told markets in December that after raising rates by 425 basis points in 2022, the Fed is still not restrictive enough, and rates will have to remain higher for longer.
But analysts are interpreting that in different ways. "What higher-for-longer does mean is that central banks will likely react later and less aggressively to downside growth surprises and recession risks than they have in the past, due to lingering inflationary concerns. That new reaction function is the reality that markets will have to start buying into at some point during 2023," Grantham said Friday.
The trend market participants are watching is how fast inflation cools down, and growth slows. "Data on Friday confirmed that PCE inflation fell further in November, and a new rent inflation series published this week by researchers at the Cleveland Fed adds further weight to our view that inflation will continue falling sharply in 2023," said Capital Economics senior U.S. economist Andrew Hunter.
This week's macro surprise was the final reading of the Q3 GDP, which showed growth at 3.2% versus the previous estimate of 2.9%. The stronger-than-expected result weighed on gold, pushing prices closer to the $1,800 line.
In the meantime, the Fed's preferred measure of inflation — the annual core PCE number — cooled to 4.7% in November after October's 5% reading.
Next week is a holiday week between Christmas and the New Year, and it promises to be quiet. But the first week of the new year kicks off with several key releases, including nonfarm payrolls, which the Fed is currently monitoring very closely.
Market consensus calls are looking for the U.S. economy to have added 200,000 positions in December and for the unemployment rate to remain at 3.7%.
Other data to keep an eye on is the ISM manufacturing and services PMI, which are also scheduled for the first week of January.
"We expect both of the ISM activity surveys to have fallen in December, pointing to a continued slowdown in GDP growth, and we are provisionally penciling in a softer 200,000 gain in nonfarm payrolls," Hunter noted Friday.
Gold's technical set-up shows a six-week-old uptrend, according to Kitco's senior analysts Jim Wyckoff.
"Bulls' next upside price objective is to produce a close in February futures above solid resistance at $1,900.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,775.00. First resistance is seen at $1,823.00 and then at this week's high of $1,833.80. First support is seen at this week's low of $1,892.70 and then at $1,882.00," Wyckoff said Friday.
Data to watch in the next two weeks:
December 28: U.S. pending home sales
December 30: U.S. jobless claims
January 4: U.S. ISM Manufacturing PMI
January 5: ADP nonfarm employment change, U.S. jobless claims
January 6: U.S. nonfarm payrolls, U.S. factory orders, U.S. ISM non-manufacturing PMI
