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Gold is shining; these factors will play a role for the yellow metal in 2023

In 2023, inflation which is expected to ease is likely to soften demand for gold as a hedge and will play a key role in capping the strength of the yellow metal.Premium
In 2023, inflation which is expected to ease is likely to soften demand for gold as a hedge and will play a key role in capping the strength of the yellow metal.

  • So far in 2022, gold faced heat from monetary policy tightening, strengthening in the greenback, and rising rates trend. However, in the last quarter of 2022, gold found some support from a smaller size hike in key rates by US Federal Reserve.

Less than a week left for 2022 to end and gold has started to pick up momentum as the dollar index pulled back on improving risk sentiment. Also, China has indicated scrapping Covid restrictions for inbound travellers in early January which lifted markets sentiments globally. In the international market, spot gold stayed above its key psychological threshold. At home, the bullion inched closer to 55,000 per gram mark.

For the last week of 2022, gold is seen to witness a range-bound performance due to the onset of the holiday season. However, in 2023, inflation which is expected to ease is likely to soften demand for gold as a hedge and will play a key role in capping the strength of the yellow metal.

On Tuesday, at MCX, gold futures maturing on February 3rd ended at 54,865 per 10 grams up by 188 or 0.34%. The bullion touched an intraday high of 54,920 per 10 grams earlier in the day. Meanwhile, silver futures maturing March 3rd, closed at 69,980 higher by 905 or 1.31% after touching the day's high of 70,335 per kg.

In the international market, spot gold price was near $1,809 rising by over half a percent, while silver price jumped nearly 1% to nearly $24.080. In a month, gold prices have risen by nearly 4% and silver by over 15%.

However, spot gold is up by nearly $200 after dropping to over a 2-year low in late September this year. 

So far in 2022, gold faced heat from monetary policy tightening, strengthening in the greenback, and rising rates trend. However, in the last quarter of 2022, gold found some support from a smaller size hike in key rates by US Federal Reserve.

For this week from December 26-30, Ajit Mishra, VP - of Technical Research, at Religare Broking believes gold might see muted action with the beginning of the holiday season and the lack of any major events. Technically, indications are in the favor of consolidation, with the possibility of a marginal dip first. On the domestic front, it may find support around the 53,900 zones while the 55,000+ zone would continue to act as a hurdle. While on the international bourses, we expect the range to be $1780-$1830. Participants should plan their positions accordingly and use a dip toward the lower band of the expected range to buy fresh as the overall trend is still bullish.

But what about 2023?

According to Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo, a challenging combination of reduced but still raised inflation and softening growth demands vigilance from investors. The likelihood of a recession in major economies threatens to elevate the poor performance of equities and corporate bonds seen in 2022.

Among the key positives, Manchanda highlighted that India's demand hits pre-pandemic levels; Q3 is up 14% to 191.7 tonnes as per the World Gold Council. In value terms, gold demand grew by 19% to 85,010 crore during the third quarter of 2022, compared to 71,630 crore in the corresponding period of 2021, signaling a positive cue for gold in the upcoming quarters. Adding to it, total jewelry demand in India during the third quarter increased by 17% to 146.2 tonnes, compared to 125.1 tonnes in the same period last year.

Fintoo expert believes that as the Fed begins to ease its policy in the second half of 2023, the gold price will rise and maintain its solid gains.

She cited that ING sees gold advancing to $1,850 an ounce in the fourth quarter of next year. Over 2H23, ING expects gold prices to move higher over the course of 2023 with prices reaching $1,850/oz in 4Q23.

Also, the World Bank predicts the price of gold to decrease to $1,700/oz in 2023 from an average of $1,775/oz in 2022. In 2024, the gold price is expected to decrease to $1,650/oz.

Further, Manchanda expects these factors to support price movement upward going forward:

- The peak of bond yields as the Fed softens its rate hikes

- Weakening of the US dollar

- Fear of recession and lay-offs

- Evolving COVID-19 variants

Inflation, which is set to ease in 2023, will soften demand for gold as a hedge and is among the factors that may likely cap the strength of gold, she added.

Lastly, Manchanda concluded that it is suggested to not have more than 5-10% exposure to gold. Look at Gold, more from a portfolio diversifier perspective rather than a higher returns perspective.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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