Gold to trade sideways in the short term, brighter outlook in the longer term – SocGen

Gold to trade sideways in the short term, brighter outlook in the longer term – SocGen
  • Thursday, 14 September 2023 | 15:17 GMT

After passing the $2,000 bar in the spring, Gold experienced weakness over the summer. Economists at Société Générale analyze the yellow metal’s outlook.

Core inflation remains sticky – easy energy wins in the rearview mirror

In the near term, while headline inflation is showing signs of cooling down, core inflation remains persistently high. The Federal Reserve is currently operating near its cyclical peak. As the risk of a US recession becomes less imminent, these circumstances afford the Fed both an opportunity and an obligation to maintain higher interest rates in order to combat inflation. Consequently, this will keep real interest rates at elevated levels. When combined with the currently strong US Dollar, these factors are expected to act as limiting factors, either keeping Gold prices below $2,000 or around that level until the end of this year, according to our estimations.

Moving into 2024, the necessity of keeping interest rates high is likely to diminish. Our outlook for the energy sector, especially crude oil, suggests that the easy strategies for controlling inflation are mostly behind us. The Federal Reserve’s interest rate ceiling, coupled with persistent inflation, plays a pivotal role in our optimistic outlook for Gold in the coming year. We anticipate a depreciation of the US Dollar throughout 2024, which is expected to provide additional support for commodities, with Gold, in particular, benefiting from these favorable tailwinds.

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