The gold bulls have taken the metal higher yet again Friday as the spot price exceeded the $1900 level and then some. The bulls are taking advantage of a few key factors to take the market higher. These factors include a continuing cooling of inflation data as well as an improving the University of Michigan consumer sentiment survey. The survey did beat expectations handily on the headline number. More importantly for gold investors, however, the report also showed a decline in inflation expectations. Although inflation expectations remain well above the Fed’s desired 2% annual target, any declines in the data may be met with buying interest in gold as it could give the Fed more wiggle room on slowing the pace of further interest rate hikes.
The path of interest rates may be a focal point for investors in 2023. The Fed recently lifted interest rates again but by 50 rather 75 basis points. It is widely expected the next FOMC meeting in a couple of weeks will see another rate lift but by just 25 points this time around. The Fed has made it clear it wants to slow the pace of rate hikes in the months ahead. The Fed also suggested that rates may need to remain higher for longer, so it may not be in as much of a hurry to hike. The big question for gold investors and the financial marketplace, in general, is not really how much the Fed will end up hiking, but rather when it will start cutting rates again. It is currently expected the Fed will start easing again in late 2023 or early 2024.
Once the Fed signals easing is on the horizon, it could fuel a powerful rally in stocks and gold. The question becomes then whether the Fed will be able to avoid putting the economy into a recession. There have already been some troubling signs of recession, such as the yield curve inversion, but they do not necessarily mean that a recession is imminent. If the Fed elects to start easing sooner rather than later, a recession may be avoided altogether.
In the meantime, the gold bulls will continue to try to take the market higher. If able to hold the $1900 level on a closing basis, the bulls may have set up a path to higher prices that could even see a challenge of previous all-time highs in the months ahead. If the Fed switches to a dovish approach to policy, look out. The yellow metal could take off and enter fresh all-time high territory rapidly and could greatly exceed previous highs. Numerous bullish factors may keep gold elevated outside of interest rates. U.S. and global debt, inflation, dollar weakness, and a general mistrust of governments may all keep investors turning to the yellow metal.
The gold bulls must hold the $1900 level now on a closing basis. Doing so may attract further buying interest that could stretch the metal’s upside in the days ahead. The bears have their work cut out for them. They need to produce a close below $1800 to get the bearish camp excited.