Master Names: Gold will be in these numbers in December and 2023!

For thousands of years, gold has been regarded as a storehouse of wealth. In addition, the price of gold tended to move in the opposite direction with stocks and the dollar. This provided investors with a measure of diversity in their portfolios. However, this year, gold did not function as a safety cushion for investors against the volatility in the financial markets.

“No recovery potential for gold amid aggressive rate hikes” As you follow, gold saw below $ 1,620 on Friday. However, it later recovered and climbed close to 2% above $1,650. However, rising interest rate hike expectations will continue to weigh on gold, according to Commerzbank economists. Economists make the following assessment:

Continued outflows from gold ETFs point to weak investment demand. With September, ETF outflows saw their fifth consecutive monthly exit. As long as the aggressive rate hikes do not come to an end, we do not expect the sentiment in the gold market to reverse.

“Gold has not fallen as much as the sharp rise in real returns suggested”

Gold did not become a ‘safe haven’ for investors as the US dollar and interest rates rose. Caroline Bain, chief commodity economist at Capital Economics, highlights the following in her note on Friday:

The main driver was the nearly 20 basis point increase in 10-year Treasury yields. Recent signs that hyperinflation may be stickier than previously anticipated suggest the Fed will remain in a hawkish mood. Admittedly, the price of gold has not dropped as much as the sharp increase in real yields might suggest. But we suspect that the diminishing liquidity of inflation-linked bonds is a reason for this difference.

2022 and end of 2023 forecasts for yellow metal

Rising bond yields and the strength of the US dollar increase the opportunity cost of holding non-yielding gold. This reduces the attractiveness of gold. The benchmark 10-year Treasury yield tried to set a new high on Friday. John Higgins, chief market economist at Capital Economics, explained the opposite link between the price of non-interest-paying gold and the yield on long-term government bonds.

In an October 14 note, Higgins goes over a hypothetical example. An investor hoping to have a “safe haven” of $1,000 in today’s money 30 years from now has two options for investing. The first of these is to invest $1,000 in gold. Another is to invest in a 30-year coupon-free Treasury bond with a real yield of 2%. A day later, the bond’s real yield dropped to 1.5%. This means that they need to invest more in the bond in order to have one-to-one real value at the end of the transfer. Alternative investments will have to increase the price of gold to maintain the same initial costs. Higgins goes on to explain:

Gold aligns with the high, liquidity-distortion-adjusted level of long-term TIPS returns. So there is room for it to fall further in the near term. We predict this year will end where it is now, and next year the Fed will change course and rise a bit as real yields fall. Our claims for the end of 2022 and 2023 are $1,650 and $1,700, respectively.

What will the Fed’s rate steps be like?

In the midst of this, Fed officials are indeed moving towards a 75 bps rate hike in benchmark interest rates. However, some are starting to show signs of whether it will slow down the rate of increase soon. In the midst of this, San Francisco Fed Leader Mary Daly said on Friday that the Fed should start talking about slowing the rapid pace of its latest benchmark rate hikes.

Market participants priced another 75bps increase of 94.5% at the November meeting, according to CME Group’s FedWatch tool. The Fed has increased its federal funds futures processes by 300 bps since its March meeting. This is one of the fastest moves in history, including three 75 basis points hikes. The indication that the central bank will switch to smaller rate hikes after the November meeting cheered the stock market on Friday. It also helped gold prices rally by 1.74% on the day to $1,656.

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