The new year got off to a solid start for the gold market, as prices rose to a nine-month high. Gold is now up 5% in the first month of 2023 and has risen for five consecutive weeks. Although the gold market is full of bullish sentiment, the market still lacks an important force to support, and this force is the gold ETF investment fund.
Gold markets remain volatile
The market is concerned that silver will not experience the same bullish sentiment as gold. After outperforming gold in November and December, silver appears to be stalling around $24 an ounce.
Silver lacked momentum, in stark contrast to other industrial metals such as copper, which traded at a seven-month high of $4.26 a pound. These market divergences will continue to play a role in the volatility of the bullion market, where investors remain convinced of the value of ultimately holding the precious metal.
Gold ETF managers are still not buying gold
Some analysts still question the durability of gold’s rally. Because fund managers of gold ETF funds are still not in the market. Data from SPDR Gold Shares (NYSE: GLD ), the world‘s largest gold-backed exchange-traded fund, shows demand for ETFs continues to decline.
As of January 19, GLD’s gold holdings fell by 5.21 tons. Next, market analysts began to question whether gold prices will rise further in the future due to rising investment demand, or whether fund managers of gold ETFs will increase their purchases to reflect the bullish sentiment in the market. While outflows from the ETF market have slowed, they are not over.
The Fed’s slowdown in rate hikes is the main factor supporting gold prices
As for the factors driving the precious metals sentiment, the Fed’s slowdown in raising interest rates, resulting in a weaker dollar, is the main factor supporting gold prices. The dollar index has fallen more than 10 percent since hitting a 20-year high in September.
Analysts say the dollar is losing steam amid expectations that the Federal Reserve will slow down its aggressive tightening cycle. Markets have almost fully priced in a 25 basis point rate cut from the Federal Reserve next month.
Economists say the February meeting is expected to be the last rate hike from the Fed. The looming recession will force the Fed to start cutting rates sometime in the second half of this year.
The Fed is widely expected to slow down the pace of rate hikes, raising rates by another 25 basis points. According to the CME’s FedWatch tool, there is a 99.2% chance that the Fed will raise rates by 25 basis points at its next meeting. However, Fed officials have yet to reach a consensus decision on the pace of rate hikes. While most Fed officials appear to support Chairman Powell’s framework, others see the need for more hawkish policy.
Members, including Cleveland Fed President Loretta Mester and Fed’s Bullard, continued to advocate for larger rate hikes, while others were seen as supporting a slower pace of rate hikes. Lori Logan of the Dallas Fed and Fed Harker both favor a slower pace of rate hikes. New York Fed President Williams said monetary policy still has more work to do to bring inflation back to 2%.
According to a poll, 80% of forecasters (68 out of 83) who participated in the poll believe that if inflation continues to decline, the Fed will raise interest rates by 25 basis points at the next two FOMC meetings, and then may keep it on hold. Rates unchanged Rates are on hold for at least the rest of the year.
Many analyzes are bullish on future gold prices, but surveys show that there is a possibility of a short-term pullback adjustment
The latest Kitco News weekly gold survey shows that bullish analysts have a slight advantage going into the weekend; however, a large number of analysts have turned to the sidelines as they believe the precious metal looks a bit overextended.
It’s hard to ignore gold’s bullish momentum, said Sean Lusk, co-head of commercial hedging at Walsh Trading. Mounting headwinds for the U.S. economy are creating a lot of uncertainty about the Fed’s monetary policy stance, which is good for gold. I think there’s some upside to this rally, with an upper target of $2,000, at which point you’ll see investors taking profits on their long positions. As long as gold can stay above $1,920, I think it has the potential to continue higher. “
On the other hand, Colin Cieszynski, chief market strategist at SIA Wealth Management, said he expects gold to consolidate around current levels before resuming higher. While the long-term trend remains bullish for gold, technically it has been doing well of late and looks a bit tired and should take a brief pause.
According to a gold market analysis report released by Bank of America: analysts said that gold is expected to become the pillar asset in the next three months.
Bank of America isn’t the only bank with a bullish outlook for gold prices. In November, the research firm surveyed 100 European and UK wealth fund managers. According to the survey results, 89% of respondents said they intend to increase their exposure to long positions in gold.
Tom Bailey, director of ETF research at HANetf, said in a report: “It may be the case that a lot of the negative sentiment towards gold has passed.
Last week, a survey of 18 Wall Street analysts showed. Eight analysts, or 44%, are bullish on gold in the near term. Meanwhile, four analysts (22%) are bearish for the week and six analysts (33%) see prices moving sideways. Meanwhile, 783 votes were cast in the online ballot. Of these, 500 respondents (64%) expect gold to rise this week. Another 169, or 22%, said gold prices would fall back, while 114, or 15%, were neutral in the near term.