Gold Price Outlook
An End to Rate Hikes in Sight
The main reason for gold’s positive change in fortunes was a reappraisal of how soon the Federal Reserve will first slow and then ultimately stop its recent policy of interest rate hikes, to curb persistently high inflation.
With inflation having peaked in the US and the jobs and economic outlook for the world’s largest economy so far showing no sign of an impending recession, the US central bank has been able to reduce its recent rate increases to 25 basis points, three times smaller than the majority of hikes implemented in 2022.
This has given gold a significant lift as the metal fell out of favour during the most aggressive period of the Fed’s hikes, with the precious metal’s lack of yield making other interest-bearing assets more attractive in its place.
Optimal Conditions for a Recovery
Yet, with the gold price having climbed so fast and so quickly long before the Fed stopped hiking rates, the increase in December was followed by a 25 basis point hike to kick proceedings off in February. Gold finds itself in a position where the facts need to catch up with sentiment to avoid the price coming tumbling down again.
Inflation on a Downward Slope
So where does this leave gold? By the end of January, traders and investors in the precious metal sector were demonstrating that they felt the price had reached its natural peak after a stellar run of gains. Factors such as a move to a more accommodative monetary policy by the Fed and a slight weakening of the US dollar have long since been priced into gold, so it will take a fresh bullish catalyst to drive the price any higher.
Central Bank Buying Increases
Taking all this into account, February could well be a month of sideways drift for gold, with the majority of the upside potential already priced in. Any dips are likely to be bought into, ensuring the price doesn’t fall far.
Silver Price Outlook
Silver has had a frustrating start to 2023 and enters February looking on with envy at the continued gains of its precious metal peer, gold. Silver has, on the other hand, been treading water.
A Strong Fundamental Case
This curious lack of movement for silver is difficult to fathom as all the factors look to be in place for the price to continue on from the impressive recovery since reaching its nadir in September.
However, investors growing frustrated with silver’s moribund start to the year should hold tight. The case for silver remains strong and with the price having consolidated for such a long time, there should be plenty of support to drive it upward as soon as the catalyst arrives to spark it into life. The case for silver touching $30 an ounce remains stronger than the one for it sinking back to $20.
The question investors are asking themselves is: where will that catalyst come from? At first glance, there is nothing obvious to point to in February that could provide that spark. But when it finally arrives, hold on tight, as silver, with its history of more volatile moves than gold, is likely to rocket.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.