Gold edges to $2000/oz and banks hold their breath

Gold prices this month are edging towards recovering the higher levels seen at the middle of the year, before prices started to fall post May 2023.

On November 22, the gold price closed at $1999.9/oz, tantalisingly just within reach of the $2000/oz mark. 

Most believe that the price will close the year higher.

"Gold is once again challenging key resistance above $2000 with a break potentially setting up another strong end-of-year finish," Saxo's Head of Commodity Strategy Ole Hansen said in a note.

"Both silver and gold have thrived during the past month on rising speculation the Federal Reserve has reached the end of the road of its aggressive rate hike regime and that next year could see a reversal, with a full percent rate cut currently priced in next year with the swaps market seeing the first 25 basis points cut no later than June," he added.

Demand strong 

Demand for gold remains strong, the bank noted. In 2022, central banks bought a record 1,136t of gold, according to the World Gold Council, and with another 800t purchased in the first three quarters of 2023, this year could potentially end with another back-to-back record. 

"This strong buying streak from central banks is expected to stay on course for the remainder of the year, indicating a robust annual total again in 2023," the World Gold Council said in an October release.

Interestingly, investment demand over the quarter stood at 157t, a 56% increase year-on-year but weak compared to the five-year average. 

Elsewhere, gold ETFs saw continued outflows in Q3, primarily driven by investor sentiment that interest rates will remain high. 

Total gold supply rose 6% YoY in Q3, with mine production reaching a year-to-date record of 2,744t. 

Weaker dollar benefitting gold?

Banks have noted that weaker economic data may benefit gold markets, with some concern about how this might play out.

"The weaker US dollar has benefitted gold prices, which could continue to find support over the longer term if the currency and US yields continue to slide as monetary policy softens," Mohamad K. Ibrahim, group chief executive of currency exchange group XS.com, said Tuesday.

"However, new economic data releases as well as the publication of the Federal Reserve's November meeting minutes (…) could alter traders' view on monetary policy and could impact the trajectory of gold prices. The release of real estate, job market, and PMI data this week could fuel some volatility as well," he added.

Looking ahead

Further ahead, banks are neutral-bullish on gold, with most expecting prices above pre-COVID-19 levels. BMI, a Fitch Solutions Company, said in its monthly outlook, published on November 15, that it expected gold prices to average $1950/oz in the longer term, supported by a weakening dollar and US treasury yields.

"Gold prices have gained ground in the past month amid heightened geopolitical risks," it said.

"We remain neutral towards gold prices for 2023, expecting prices to average $1,950/oz. In the longer term, we expect prices to be supported by a gradual weakening of the US dollar and US treasury real yields. Beyond 2023, while we expect significant price volatility, we expect gold prices to remain elevated in the coming years compared to pre-COVID levels."