December for Gold Price - Pepperstone
According to Australian Pepperstone, gold might take away $1,800 and have a fantastic 2023.
After seven months of declines, gold finally gained traction, reaching a low of around $1,620 per ounce.
On Tuesday, December gold futures rose in response to a slower US Producer Price Index and increasing geopolitical concerns following news that a Russian missile crossed into Poland and killed two people.
"We're witnessing signs of stabilization ahead of a possible challenge above $1,800/04 and higher. I'm happy to maintain a favorable bias, but I'd rethink between $1739 and $1710, "Chris Weston, Pepperstone's head of research, stated.
"Gold investors have had an unpleasant year, and there has been an opportunity cost with keeping longs, especially when cash has emerged as a risk-free investment class."
In the short term, gold's circumstances are positive, and December is projected to be "quite dynamic," according to Weston.
"Looking ahead," he added in a note Tuesday, "we observe that implied volatility (priced in the options market) has fallen off a touch, with XAU 1-month IV into 15.5%, although this appears reasonable with implied volatility across asset classes declining recently."
"This measure of gold's projected volatility includes the US JOLTS job openings data (1 December AEDT), US non-farm payrolls (3 December), and November U.S. CPI inflation report (14 December), but does not include the December FOMC meeting (15 Dec). In any case, while the market reduces volatility expectations, I see a floor in vol given the forthcoming tier1 event risk, and I expect this time to be highly active for gold, as well as the USD, rates, and the NAS100."
The US dollar, which has lately offered leeway for gold prices to rebound after weighing heavily on the precious metals throughout 2022, is a major driver to monitor as markets go into the year's close.
"Given gold's gain in relation to US real rates, we can see that the USD is the major factor, and with the DXY falling below 106, XAU has benefitted. One can write a lengthy thesis on the USD, but under the USD'smile' theory, a better sense of global growth is certainly helping, particularly with USDCNH falling so sharply as China pivots on its C0V1D plans - we can also see an end to the Fed's hiking cycle, with many believing that March 2023 could be the date when we see a prolonged pause in its hiking plans "Weston elaborated.
A likely Federal Reserve pause in December is a significant plus for the gold market, according to Weston. However, much will be determined by the November inflation data, which will be announced in December.
"The next US CPI print (14 December) will be a blockbuster - not just because we have the FOMC meeting the next day, but it could confirm that the US inflation rate is falling not specifically because of tighter financial conditions through QT and rate hikes, which still need to feed through to the real economy."
However, there is a belief that, as supply chains ease, high prices feed on themselves, and inflation is falling on more organic factors - high prices being the cure for high prices - a factor that could be confirmed in the November U.S. CPI report, and that could radically increase the need to pause on hikes after we see a 50bp in the December FOMC - a gold positive," said Weston.
Markets are putting in an 85.4% possibility of a 50-basis-point rate rise in December, down from the 75bps pace employed in the last four meetings, according to the CME FedWatch Tool.
"Positioning in gold futures is net short, and options skew is neutral - we are approaching a seasonally good period to be long US stocks, and if equities do run hot until the end of the year, investors will remove USD hedges, which should support XAU. An open mind is advantageous, and certainly, if the November CPI figure comes in high, gold may be crushed, but that is still weeks away "Weston made a point.
