Gold prices experienced a slight dip in January 2023 after a robust performance at the end of 2022 despite strong seasonal factors. However, the World Gold Council (WGC) is confident that geopolitical tensions, uncertainty surrounding elections, and eventual rate cuts will provide support for gold prices throughout the year.
The WGC reported that global gold ETF outflows accelerated to 51t, and COMEX futures net longs decreased by 206t, contributing to the decline in gold prices. Additionally, higher Treasury yields and a stronger US dollar, driven by better-than-expected US economic data, posed challenges for the precious metal.
Looking ahead, WGC analysts expressed that although rate cuts historically benefit gold prices, the initial cut after a hiking cycle may not be a significant catalyst for a rally. They noted that a material economic or equity correction is typically required to push longer maturity yields lower and stimulate near-term gold price rallies.
The report also highlighted several concerning developments that could hinder the Fed’s anticipated pivot, including relatively easy financial conditions, stubbornly high labor costs, stagnant rental rates, and tensions in the Middle East impacting freight costs and potentially causing supply-chain pressures.
Furthermore, the WGC cautioned that if inflation and employment data remain elevated, yields could climb back up, which may present a headwind for gold. However, they added that higher bond yields could also put pressure on equities, resulting in stock market volatility.
In conclusion, the WGC emphasized that the general level of uncertainty, including geopolitical instability and upcoming elections, is likely to keep some investors holding onto gold as a safe haven asset. Additionally, they stressed that investors should approach this information as only informational and should always research before making any exchange in commodities, securities, or financial instruments.
