By Nicholas Earl
Gold has remained steady heading into New Year, with investors awaiting the next Federal Reserve (the Fed) hike before showing their hand.
Prices are up 0.16 per cent this morning, trading at a hefty $1,832 per ounce, with the US central bank set to meet at the end of this month to establish interest rates.
Currently, US interest rates are placed at 4.25-4.50 per cent, with the Fed taking a hawkish approach to taming inflation, which peaked at a massive 8.2 per cent in September before easing later in the year to 7.1 per cent in November.
There is growing expectations from markets that slowing economic growth and reduced inflation rates could lead to a more dovish approach from the Fed, with only a 25 basis point hike on January 31.
This would likely lower the resilience of the dollar, which strengthened considerably over 2022 – achieving near parity with the pound – and increase the value of gold as a flight to safety asset amid an economic downturn.
Glinting opportunity: Gold recovers from sharp downturn amid hopes the Fed eases pressure
Gold soared to a whopping $2,043 per ounce in early March following Russia’s invasion of Ukraine, with economic turmoil pushing investors towards the safe haven metal.
Prices remained elevated through the spring before dropping over the summer amid a firm response from the Fed, alongside spiralling inflation, with prices dropping as low as $1,627 in September before stabilising in the winter.
Craig Erlam, senior market analyst at Oanda believed the yellow metal was being buoyed by the mild risk-aversion in markets.
He explained: “This could be a year in which global growth slows significantly and traders are questioning whether that will warrant monetary policy to be loosened later in 2023. Central banks have pushed back strongly against the idea and I imagine the IMF would too at this point but we could see markets moving in that direction if the data doesn’t continue to haunt us.”
Rupert Rowling, markets analyst at Kinesis Money argued it was too soon to forecast gold prices, and that the commodity could swing in either direction depending on the economy and central bank measures.
The gold expert noted that predictions on price movements were currently based on speculation and sentiment rather than actual policy.
He said: “With gold having received a huge boost from expectations that the Fed might be turning more dovish in the New Year, without any actual moves or words from the US central bank and its officials, investors will be wary of a readjustment of the narrative causing the price to tumble again.
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