Gold prices pulled back in 2023 due to the strength of the US dollar. However, according to IG Wealth Management Chief Investment Strategist Philip Petursson, the yellow metal could be poised for a big breakout in the near future.
This would be positive for gold!
In his latest interview, Philip Petursson says that even at $2,000, gold has a significant upside potential. Petursson states that prices should rise significantly next year. In this context, the strategist comments:
Gold has been dragged down by the strength of the US dollar and the US dollar for much of this year. These tend to be inversely proportional. So as the US dollar strengthens, gold tends to weaken slightly. Now, if we assume that the US dollar softens from here, which I think is our base case scenario going into 2024, that would be positive for gold.
Gold is 20% below its value, target is $2,400
Philip Petursson says IG believes gold is undervalued by up to 20%. Accordingly, he predicts that once it catches this price and solidly surpasses $2,000, it could potentially rally as high as $2,400. IG Wealth Management expects this bullish scenario to play out even if bond yields remain at decade highs. It also predicts that the US economy will make a soft landing and avoid a recession. In his 2023 third quarter market assessment, Petursson underlines the following points:
As we consider the balance of 2023 and look ahead to 2024, we view higher bond yields will continue to create some volatility in equity markets. However, our economic view is still leaning towards a soft landing scenario in the US. This leads to a more cautiously optimistic view for stocks over the next 12 months. Meanwhile, fixed income investors will benefit from higher interest rates overall.
The Fed’s hawkish stance and the impact of treasury yields
The downward trend in gold prices in recent days is partly due to the stance of Federal Reserve Chairman Jerome Powell. Because Powell made hawkish statements indicating that concerns about inflation and interest rates continue. cryptokoin.com As you follow from , the Fed did not make any changes to interest rates at its last meeting. However, Powell’s comments point to the possibility of further interest rate hikes. Therefore, it creates uncertainty among investors about the duration of high interest rates. It also raises potential risks of recession in the US economy.
Following Powell’s statements, the yield on the 10-year US Treasury bond rose significantly. Thus, it reduced the attractiveness of gold, which has no return. This created downward pressure on gold prices. The increases in yields on several Treasuries, including a significant rise in 2-year and 30-year Treasuries, followed a Treasury auction that saw weak demand, indicating a shift in investor sentiment.
Dollar strength and gold outlook
The dollar index is on track for its biggest weekly gain in the last two months. This makes gold more costly for those who hold other currencies. There is a slight expectation that the Fed will continue to increase interest rates. As a result, the opportunity cost of holding non-interest bearing gold increases. This contributes to the bearish short-term outlook for the shiny metal.
Gold technical analysis: It has a bearish outlook
Market analyst James Hyerczyk evaluates the technical outlook for gold as follows. Gold’s current daily price at $1,955,730 is holding the minor support level at 1,952,210, indicating a potential stabilization in the short term. However, it is trading below the 200-day and 50-day moving averages of 1,934.785 and 1,923.595 respectively. This points to a broader downward trend.
The price is also trending below the minor resistance at $1,987.00 and well below the major resistance at $2,009.00. This strengthens the downward trend. This positioning, combined with gold’s position relative to the moving averages, indicates a cautious and bearish outlook in the gold market.