Head of Commodity Strategy
Summary: Gold remains on the defensive as an overdue correction continues to unfold in response to recent dollar and US Treasury yield strength, brought about by the Federal Reserves need to remain hawkish amid recent economic data strength, not least recent inflation data which is showing loss of downward momentum. Additional dollar strength may send it lower still towards the next area of support around $1788, while a resumption of the positive sentiment as a minimum would require a close above the 21-day moving average, currently at $1883
Today's Saxo Market Call podcast
Today's Market Quick Take from the Saxo Strategy Team
Gold is still on the defensive and following a +340-dollar rally since early November the market has now given back around 125 dollars. The trigger which saw the price trade lower after being rejected at $1950 was a recent batch of stronger than expected US economic data highlighting the challenge the US Federal Reserve is facing when trying to force inflation lower towards its long-term target of 2%. Developments that has seen months of dollar weakness being replaced by renewed strength while bond yields have moved higher, both developments, given their inverse correlation, have provided gold with fresh headwinds.
The latest slump which saw bullion prices hit an $1819 low last Friday came after Fed’s Mester and Bullard, both non-voters, responded to recent strength in US CPI and PPI data by called for another 50-bp rate hike. The result being a Fed funds futures market pricing in a higher terminal rate and a longer period before rates eventually begins to turn south. The future direction of inflation remains a key focus for us and the market in general, and whether the Fed’s long-term (low) target can be met. While the prospect of an economic slowdown may support lower price pressures in the short-term, the medium to long-term outlook remains challenged by the current developments on the global stage.
As stated before, we are looking for a price friendly 2023 for investment metals supported by recession and stock market valuation risks, an eventual peak in central bank rates combined with the prospect of a weaker dollar as well as continued strong central bank demand. In addition we still view the medium term outlook for inflation falling to below 2.5% as being somewhat optimistic, compared with our forecast closer to 4%. First, however, we will see several months where inflation will continue to decline before rising wage pressures, Chinas recovery lifting the cost of raw materials will be felt.
Regarding investment flows we have yet to see demand for ETFs recover with total holdings still holding near a two year low near 94 million ounces, having seen no pick up during the mentioned 320 dollar rally. Hedge funds meanwhile have been near constant buyers since early November, and during this time the net long has jumped from a 3.9 million ounce net short to a 9.3 million ounce net long, a nine-month high.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)