On Tuesday (December 27), spot gold rose as the dollar fell, making dollar-denominated bullion cheaper for overseas buyers. There has been a long-awaited easing of inflation in the United States, the world‘s largest economy. But many investors believe that in 2023, we should prepare for more surprises.
At 19:40 Beijing time, spot gold rose 0.69% to $1,810.17 an ounce; the main COMEX gold futures contract rose 0.77% to $1,818.1 an ounce; the U.S. dollar index fell 0.13% to 104.040.
China’s National Health Commission (NHC) said in a statement on Tuesday that China will stop quarantine of incoming travelers from Jan. 8. It was seen as an important step in China’s move toward easing border restrictions. It is worth noting that China is the largest gold consumer in the world.
U.S. inflation expectations fall
Data last week showed a slowdown in the U.S. personal consumption expenditures (PCE) price index, with declines in consumer spending reflecting reduced household demand that will be offset by lower prices for goods and services. In addition, lower demand for durable goods supports expectations of lower inflation going forward. Investors are betting on lower U.S. inflation going forward, reinforcing expectations that the Federal Reserve may scale back its aggressive monetary policy tightening.
Many investors are growing confident that inflation may have peaked, betting that the market will reverse in 2023. About 90% of investors expect global inflation to fall in the next 12 months, according to a December survey of fund managers by Bank of America. That’s the highest percentage in the survey’s history.
Record gasoline prices, supply chain problems and Russia’s war in Ukraine have pushed up consumer prices, prompting workers to demand bigger wage increases. However, now that oil prices have fallen sharply and supply obstacles have improved, they have lowered consumer inflation expectations for the next 12 months, according to recent surveys.
“That should lower wage growth,” said Mark Zandi, chief economist at Moody’s Analytics. He expects annual wage growth to fall to 4% by the end of 2023 and 3.5% by mid-2024, which would reduce the Prompting the Fed to hold back on rate hikes when it becomes clear early next year, which should help the economy avoid a recession.
Nancy Tengler, chief investment officer at Laffer Tengler Investments, said: “I think if you are a bettor, you have to conclude from the data that inflation is coming down.”
Federal Reserve Chairman Jerome Powell said it was too early to say that inflation has peaked. But Ms Tengler said prices for everything from air tickets to used cars to shipping had fallen in recent months. That helped consumers become more optimistic about the economic outlook.
Christopher Wong, currency strategist at OCBC Bank, said:“Gold is weak for most of 2022 due to a sharp tightening of monetary policy, higher real yields and a stronger dollar. But the situation has shifted as the Fed shifted to policy calibration mode, and if the Fed does, gold prices may continue to recover .”
Accidents must be avoided in 2023
The big market debate about 2023 has already begun: The Fed has said it expects to continue raising interest rates, but traders have been pricing in rate cuts. Company executives have warned of a potential recession, but economists at some institutions, including Goldman Sachs Group AG and Credit Suisse Group AG, believe the U.S. economy will avoid one in 2023. If there’s a lesson to be learned from the past 12 months, some investors and analysts say, it’s this: be prepared for more surprises.
Like many other strategists, Christopher Smart, chief global strategist and head of the Barings Investment Institute, had forecast slower inflation in 2022. But he didn’t foresee Russia’s invasion of Ukraine, sending energy prices soaring.
“We all approach the coming year with a certain amount of humility,” Smart said. “In retrospect, you can always say you knew these were risks and at the same time they were considered unlikely to happen in the new year.”
Fund managers surveyed by Bank of America said high inflation was listed as the top “tail risk” for markets, followed by a deep global recession and central banks keeping monetary policy tight. In market terms, tail risk is typically a negative event that investors believe is unlikely to occur.
But Scott Colyer, chief executive of Advisors Asset Management, said: “The market has been thinking that every rate hike is expected to be the last rate hike, even though the Fed has been telling the market that is not the case. I think if you fight the Fed, you do it at your own risk.”
SPI Asset Management analyst Stephen Innes said,In addition to institutional buying, individual investors are also readjusting their investment portfolios in 2023 as investment confidence weakens, and buying gold is part of a diversification strategy.
Is it difficult to alleviate the pressure of rising wages?
Inflation has been stubbornly high, especially in service industries such as restaurants and health care, as the pandemic has eased and consumers will turn to activities such as dining out and travel. That boosts demand for workers in those industries and drives up wages. Price increases in these industries accounted for more than half of the key underlying inflation gauge and were largely driven by wage increases, Powell said.
Labor shortages in these sectors persist as millions of Americans quit their jobs during the health crisis caused by the new crown epidemic or early retirement. Many are not expected to return. As a result, employers must raise wages to attract smaller applicants or to attract those who leave.
Traditionally, the Fed raises rates to increase borrowing costs, weaken demand and make it more expensive for companies to hire and invest. Rising unemployment typically leads to lower wage increases, and vice versa. But this relationship between unemployment and wage growth — known as the Philips curve — has cracked in recent decades.
Jonathan Miller, senior U.S. economist at Barclays, said that what could keep wage growth high is that job openings fell to 10.3 million in October from a record high of 11.5 million a year ago, but that’s still far from enough. That’s up from the pre-coronavirus level of 7 million. While job growth is expected to slow as the economy loses steam next year, employers may still have to offer healthy wage increases to attract workers as their numbers dwindle.
ING currency strategist Francesco Pesole said:“December has been a weak month for the dollar based on its seasonal trends. It’s worth remembering that the dollar has risen in January in each of the past four years. Our view for early 2023 remains one of dollar recovery .”
Spot gold looks at $1816
On the daily chart, spot gold started a three-wave upward trend from $1,784, with the upper resistance looking at the 38.2% target of $1,816 and the 61.8% target of $1,836. The 3rd wave is a sub-wave of the upward (3) wave that started at $1725.