Gold Price 2023 Perspective

Gold caught a 16% strong surge between the end of January 2022 and March 8, 2022, endeavoring to reach its prior all-time high of $2075/oz achieved in August 2020, as the war in Ukraine led to an upsurge in geopolitical tensions and market risk hatred. 

Gold Price 2023 Perspective 

As the Fed delivered its first interest rate drift of mid-March 2022, gold began to flex lower. When Fed Chair Jerome Powell started accelerating the speed of hikes, the negative trend in gold costs intensified over the summer and until the closing of Q3. Gold fell 22% from March cliffs to September lows at 1,615/oz amid a dollar rally and rising Treasury yields,

Gold commenced recovering by 12% by the end of December after hitting what is known as a specialized "triple tail" in September, October, and November.

Gold had a varied year overall compared to the performance of other immediate metals in 2022. The yellow metal exceeded copper (-14%) and palladium (-4.2%) but lagged after silver (+4.5%) and platinum (+4.6%).

Gold vs. U.S. 10-year authentic products

Gold is trading at a wide cost premium compared to the long-term historical correlation of the bullion with U.S. 10-year authentic products.

After the Fed fiercely inflated interest rates in 2022, real yields on 10-year Treasuries – measures the difference between nominal and breakeven inflation rates – moved from opposing to the optimistic territory. 

Higher confirmed products on a safe-haven investment like the U.S. Treasury bond drop the encouragement to hold or purchase a non-yielding investment, such as gold.

However, the negative influence on gold costs from rising U.S. accurate rates was less severe than anticipated, given the adverse historical connection between the two variables. 

During times of positive real yields, gold has invariably traded below $1,450 per ounce. Actual rates are drifting around 1.5%, while gold is trading at over $1,800 per ounce, suggesting the historical association between the two busted in 2022.

How will the gold-dollar correlation develop in 2023?

Since the Fed's hike cycle began, the negative link between gold and the U.S. dollar has become more potent. The strengthening of the dollar weighed significantly on gold costs in Q2 and Q3, but when the USD weakened in Q4, bullion rallied.

The 30-day relationship factor between gold and the U.S. dollar index (DXY) now sets at -0.87, indicating almost an ideal negative linear link. 

This dollar-gold relationship may remain strong in 2023. Gold may relish higher if the dollar withers as anticipation of a Fed turn improves. Conversely, if the Federal Reserve bears its hawkish stance for an extended period, it will support the dollar and intimidation gold.

The perspective for US GDP and inflation are the main aspects that should be assessed when analyzing the dynamics of the gold-dollar correlation. An economic slowdown and lower inflation would put less tension on the Fed to remain hawkish, benefiting gold. In contrast, if the U.S. economy dodges a recession and the labor market stays exceptionally tight, the U.S. central bank may remain solely engrossed in obtaining inflation back to the 2% objective.

The gold promise of traders

Prominent money directors' stance toward gold has recently sweetened, with the net holding of futures and choices contracts turning positive.

According to the Commodity Futures Trading Commission's (CFTC) weekly Commitments of Traders (COT) information, money leaders' net holdings of COMEX gold options and futures were comparable to 56,550 contracts for the week finishing December 13, 2022, the highest level since late June 2022.

Money directors' long positions in gold options and futures positively affect the metal's spot cost.

Therefore, increased net long positions on gold derivative contracts will likely restart to put upward pressure on spot costs in the next year.

The bullish strategy for gold in 2023

The best-case system for gold in 2023 entails a slowdown in international economic activity and a shift by the world's central banks toward looser financial prerequisites amid reducing inflation worries. 

If the U.S. economy goes into recession and inflation persists in slowing down, a rising unemployment rate would put the Federal Reserve in a tricky position to keep a hawkish outlook. A dovish shift by the Fed board would negatively affect the dollar and thus push gold costs higher. 

A thriving reopening in China may also positively impact physical demand for jewelry gold. If these catalysts materialize, gold costs will rise by at least 10% to around $2,000/oz.

Presume stagflation was to intensify, with a worldwide recession and sticky inflation but with central banks holding off on additional monetary tightening. In that case, gold's price might skyrocket as investors simultaneously exit bonds, stocks, and currencies. Similar, highly bullish tactics played out in the 1970s. In this case, gold would be considered the "only asset in town," It may exceed its all-time high of $2,070/oz.

The bearish strategy for gold in 2023

If inflation is a tricky beast to defeat, the economy maintains well despite tighter financial impediments. The job market remains extremely fast; central banks may even hike more than predicted demand.

This would result in "more of the same" downward pressure on gold prices, as investors will sense the dollar as the best inflation hedge. 

However, the onset of a slump the following year may relieve the negative impact of high U.S. interest rates, indicating that gold may suffer less than it did during the selloff in 2022. In a gloomy scenario with a hawkish Fed and a U.S. slowdown, gold might average about $1,670-1,700/oz.

Gold chart breakdown

Gold costs soared after reaching a triple bottom on November 3, breaking some noteworthy expense resistances.

The bullion first breached the 50-day moving average at 1,670, which also reached the down channel in 2022, and then the 200-day moving average in December, riding around 1,800.

As of this writing, gold costs have successfully retraced negligibly more than 38.2% of the 2022 high-to-low range. The following necessary Fibonacci level is 50% retracement, about 1,840.

This will be a crucial burden for gold to overwhelm since it sketches the authorization zone before the Q3 2022 selloff. If bulls prevail over bearish resistance there, they may have enough confidence to enhance costs to 1,895 (61% Fibonacci) and then to 1,970 (78% Fibonacci).

If gold costs rather overlook resistance at 1,840 and then withdraw, it will be a bullish disappointment that might conduct more downside pressure.

If a bearish RSI divergence forms, the intimidation from sellers may increase. Gold costs are higher than in mid-November, but the acceleration oscillator is falling.

If this scenario continues, the initial asset level would be 1,788-84 (38% Fibonacci and 200-DMA), followed by 1,727-21 (23% Fibonacci and 50dma).