Gold Outlook
Gold starts November hoping that after another month of losses in October and the downward trend the precious metal has been on for much of the year will finally turn around.
This cautious optimism stems from the growing expectations that the Federal Reserve may soon adopt a less aggressive stance with its interest rate hikes and finally give some breathing space for gold.
Investors await the November hike
Gold has struggled under the weight of a series of large interest rate hikes with the Fed expected to kick off November with another 75 basis point increase. If confirmed, that will be the fourth consecutive hike of that magnitude. However, as much as the Fed’s decision on where to move its interest rate to is significant, arguably of greater importance to the market direction will be the comments by Fed President Jerome Powell in the press conference following the announcement.
Speculation has been mounting that November’s decision will be the last big hike of this cycle, with forecasters predicting a 50 basis point increase for December before rates remain largely stable in the new year. This potential letting up on the aggressive rate hikes sparked a tentative recovery for the price of gold in late October so investors will be keen to glean any hints on how long the Fed is thinking of maintaining its current stance.
Bullish factors see gold flow East
The other bullish factor for gold in November has been the metal’s price action as it neared $1,600 an ounce in October. With gold trending towards the bottom of its 2-year range, physical buyers, particularly those in Asia, have consistently taken advantage of any dips to top up their holdings. The impact of this was reflected in Asian prices commanding a premium over European ones, encouraging flows of gold to the East.
US inflation figure incoming
While November 2nd will be a key date for gold, and the markets as a whole, with the Federal Reserve’s interest rate decision, the publication of the US inflation figure for October on November 10th will also be a significant driver. Persistently high inflation has been the main reason behind the Fed’s series of rate hikes so investors will want to see the figure falling to show that the US central bank’s efforts are starting to yield results.
Current expectations are for a very small decline in the rate of inflation but if this figure were to surprise to the upside, gold is likely to come under fresh downward pressure as the Fed would have less fiscal room to end its rate hikes in the short-term.
Taking the different factors into consideration, gold’s steady decline over the last few months means there is little downside potential for the price. Significant support from Asian buyers as well as the ongoing war in Ukraine should mean the gold price remains comfortably above $1,600 an ounce.
However, hopes of the price climbing back above $1,700 an ounce feel premature given that they are based on the expectation that the Fed will be able to let up on its large rate hikes in the coming months. Rather this, than the reality of another significant increase due at the start of November.
Silver Outlook
Silver finds itself in an interesting situation as we enter into November. Whereas gold endured another monthly decline in October, silver remained largely stable with its low for the year seemingly having happened back in September.
Fundamental case for silver remains unchanged
The fundamental case for silver has remained both healthy and unchanged throughout 2022 but this has been more than offset by the Federal Reserve’s decision to implement a series of large interest rate hikes from April onwards. With another increase expected by the US central bank to kick off November, the macroeconomic environment remains challenging for silver with the metal’s lack of yield meaning that other interest-bearing assets, such as bonds, are more attractive to investors.
However, while another 75 basis point increase by the Fed is all but confirmed for November, expectations are mounting that the trajectory in coming months may not be as steep. Any let-up on future hikes would lift some of the pressure on silver and enable it to regain more of the ground it has lost since April. There certainly remains significant buying support for the precious metal as seen by the swift recovery in the price every time it dips below $19 an ounce.
A year of record demand
With 2022 set to be a year of record demand for silver, with the metal used in two of the key technologies of the energy transition, in photovoltaics for solar energy and batteries for electric vehicles, it is curious to note silver’s price struggles. This highlights the fact that while the metal has industrial appeal, much more so than gold, it is also an investment asset exposed to the decision-making of institutional investors as well as retail investors.
November may be too early for the interest rate cloud hanging over silver to fully lift but with the silver price having illustrated it has reached its bottom, a month of modest gains feels probable, setting silver up for a much more bullish 2023.
Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.
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.
