This has been an interesting year for gold and other markets, to say the least. The yellow metal began 2023 at less than $1,800 per ounce and is looking to finish the year well above $2,000 for a gain of over $200 per ounce on the year. This represents an annual gain of over 10% and that could be stretched quite a bit further by the time this latest move higher has exhausted itself. The market is now set to continue into fresh all-time high territory, and certain catalysts could drive it significantly higher in a short period.
The ongoing threat of inflation has the potential to keep the Federal Reserve handcuffed in terms of monetary policy. The central bank has held rates steady at its previous meetings and talk has been increasing of possible rate cuts coming as soon as March. Whether the Fed decides to cut rates at that time remains unclear. What does appear to be clear at this point, however, is that the Fed’s tightening cycle appears to have run its course. Knowing that any additional rate hikes are extremely unlikely at this point may keep gold buyers flourishing and may keep the metal from falling too far during any declines.
The Federal Reserve, inflation, and interest rates are not the only factors that may contribute to gold’s fortunes in the year ahead. The strength of the economy may also play a key role in gold, and recent data suggests that the economy may be weakening. If this trend were to continue into the new year, the Fed could become more aggressive as it loosens policy. The threat of a recession could give the Fed wiggle room to cut rates dramatically, possibly even approaching the zero level before it is done.
The ongoing wars in Ukraine and Israel may also play a role in gold this year. These conflicts have not seen any fresh, major headlines hit the media for some time now. Risks remain, however, that may be factored in by investors until the wars are over. The Israeli/Hamas war has thus far been limited to just those two parties. Should another actor decide to enter the conflict, such as Iran, the U.S. would almost certainly feel compelled to jump in. The U.S. already has significant firepower stationed within the region and could be ready to act at a moment’s notice. Talk of nuclear weapons use by Russia has thus far been just that: talk. Should Russia elect to use nuclear weapons, however, the war itself would change significantly and other nations could decide to get involved to prevent further nuclear weapons use. Any way you slice it, the use of these weapons would be a bad deal, not just for Russia and Ukraine but for the entire world.
The gold bulls remain in firm control of the daily chart. The uptrend currently in place may keep the price of gold moving higher. This, along with a lack of overhead resistance, may allow the metal to not only move higher but to do so in a rapid fashion. $3,000 or even $5,000 gold cannot be ruled out in 2024 and could become a distinct possibility depending on how some of the aforementioned issues play out in the year ahead.