Gold has started 2023 on the front foot with today’s gains pushing the price to its highest level in more than six months.
Today brings the release of the minutes from last month’s Federal Open Market Committee which should shed more light on where the US central bank sees interest rates needing to go to curb persistently high inflation. Although these minutes reflect back on how the market was a few weeks ago, it will be interesting to note gold’s reaction as the precious metal has been able to enjoy a run of gains despite the Fed signalling the likelihood of interest rates needing to climb to 5% this year.
A weakening of the US Dollar allied to a softening in the outlook of how hawkish the Fed would need to be as well as the collapse of crypto exchange FTX all boosted gold and have led to an impressive surge in the price from early November onwards. With the short-term boost from investors switching out of crypto assets and into gold now largely complete, the focus switches on how correct the dovish reappraisal of the Fed’s likely trajectory proves.
The concern remains that gold has gained considerably on rhetoric rather than fact with the Fed implementing another interest rate hike in December and all supporting comments pointing to more raises likely in 2023. As such, gold’s bullish run is based largely on sentiment, leaving it prone to a sharp reversal should the facts not much up. Investors should therefore be wary ahead of today’s publication of the minutes with the potential for an abrupt end to the run of gains.
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