What's Next for Gold in an uncertain market?

Analysts have been saying that in the current market conditions, gold prices should be significantly lower. However, in reality, the market really doesn’t know what it wants to do. The dollar continues to be supported, the S&P is rallying, and yields are rising, yet gold remains resilient—it’s all become a case of grabbing what you can.

Claims that the S&P is now in a bull market are kind of head-scratching. The market once again believes the Fed is done with rate hikes, yet every time the market has taken this approach, it has been caught off guard. Uncertainty is already creeping back in after the surprise rate hikes by the Australian and Canadian central banks earlier this week, which has made investors nervous about the prospect that this move could force the Fed to raise rates again.

As for gold, it continues to be supported. Investing in gold during times of uncertainty is appealing to investors, especially amid constant chatter about weakening economies and potential recessions. However, that’s not the entire picture. Central banks have been buying gold at a record pace, reaffirming a global de-dollarisation trend, and this will only continue to intensify.

What’s next for gold?

Gold is now only 6% below its all-time high, and money managers and investment firms are recommending investors add gold to portfolios due to its continued strong performance.

The big question now is how high will prices go? Many analysts have said that gold’s true potential will be unleashed when the Federal Reserve has unequivocally halted its tightening cycle. Ole Hansen, a respected commodity strategist at Denmark’s Saxo Bank, says it’s possible for gold to reach $3000 an ounce in 2023 once markets realise that global inflation will remain high despite monetary tightening. Bloomberg and other publications have called this prediction outrageous, and perhaps it is on the wild side—I agree. However, given that gold is the trade of 2023, I for sure see it reaching new highs before the year-end

The Short Term

The upcoming FOMC decision next week will determine the next move for gold. If the Fed pauses, gold is likely to surge back above $2000. On the flip side, if the Fed was to surprise and raise rates, the yellow metal could face pressure and potentially fall and align with the average fair value call of $1850 by analysts.