Gold Price Forecasts for the 4th Quarter: A Storm Could Hit!

Gold sustained heavy losses in the third quarter, continuing its decline from the previous three months. So, it is indisputable that 2022 is a tough year for gold. The precious metal did not react to persistent geopolitical uncertainty, rising inflation and growing global economic turmoil. So, what will be the position of the gold price in the coming period? Strategist Diego Colman and market analyst Neils Christensen seek an answer to this question.

Gold price Q4 key forecast: May worsen before storm

Strategist Diego Colman analyzes the situation of gold in Q4. The gold price briefly rallied above $1,800. Thus, he took a temporary respite between the end of July and the beginning of August. However, sellers soon closed higher, triggering a brutal downtrend. After that, prices fell to their lowest level in more than two years towards the end of September.

This sale was triggered, in part, by rising borrowing costs in developed markets, but more importantly in the United States. Central banks around the world quickly withdrew stimulus in 2022 in an effort to tame rising prices. For example, the Federal Reserve has tightened its monetary policy by 300 basis points over the past seven months. This move paved the way for government bond rates and the US dollar to jump to multi-year highs. Those were also two headwinds for yellow metal.

The chart below shows how gold, plotted on an inverted scale for better visualization, has steadily weakened as both the DXY index and the US 10-year TIPS, which represents real returns, have risen higher since March. There is no doubt that the correlation was tight for all three assets during this period.

Red waters await precious metals!

In general, when the US dollar strengthens, commodities become more expensive than other currencies. This is a situation that will reduce gold demand and therefore prices in global markets. Also, when real returns increase, the opportunity costs of holding assets that do not pay interest or dividends, such as precious metals, increase. So it causes investors to look for better returns elsewhere.

Looking ahead, there is reason to believe that gold will continue to underperform early in the fourth quarter, before bottoming out in late autumn. The Fed’s increasingly hawkish stance suggests the benchmark interest rate could rise to 4.6% from the current 3.1% next year, with “higher for longer term” holding US Treasury yields and the US dollar higher, and precious metals in the near term. shows that it will create a hostile environment for The chart below reflects how nominal returns are progressing this year, with the FOMC normalizing in full swing.

Do cloudy skies open late at the end of the year?

However, the outlook for gold is likely to improve at the beginning of the year, as tightening financial conditions begin to affect the real economy and reinforce downside risks for both the US and the global economy. Monetary policy moves with a long and variable lag. This shows that the full negative impact of the Fed’s walking cycle has not been felt yet. Defense assets, partially backed by safe-haven flows, are likely to benefit as the harmful effects begin to become more pronounced before the end of the quarter.

Additionally, forward-looking investors and traders will begin to position for the dove axis when the headwinds of recession become too strong to ignore and slowly pull down long-term bond yields, which often reflect future growth and inflation expectations. Once these events happen, it’s possible for gold to stabilize in the early stages of 2023. It’s also likely to provide a more lasting recovery. By contrast, in the early stages of the fourth quarter, weak fundamentals require more weakness or at least sideways price action.

Is the gold price on the brink of a new bull market?

Market analyst Neils Christensen makes the following assessments regarding the outlook for gold. Despite all the economic troubles, the gold market has been falling steadily for the past six months. cryptocoin.comAs you can follow, the price action of gold this year has been disappointing. This brought out the investors in a downtrend with all their might, as the negative mood rose to the highest level in four years.

It is possible to see the negative mood in the latest headlines in the precious metals market. This week, commodity analysts at ING noted that gold has been in a technical bear market since its peak in March. At the same time, BMO Capital analysts lowered their gold forecast for 2023 by 6%.

However, before giving up on gold, it should be noted that this negative feeling is not sustainable. The gold market saw its last six-month decline from April 2018 to September 2018. After September, the precious metal entered a strong uptrend. This resulted in prices reaching a new record high of over $2,000.

The same pattern is taking shape in the downside speculative position of gold, which is at its highest level since December 2018. It’s hard to say if gold prices will return to $2,000 anytime soon. But at some point, investors will begin to understand the value. This will create an opportunity in the precious metals field.

If you’re looking for the spark to ignite the next bull run underneath, look no further than the Federal Reserve. The aggressive monetary policy of the US central bank increased real bond yields to 1% from around -1% at the beginning of the year. This pushed the US dollar to its highest level in two decades. These are two strong winds for gold.

Gold price still faces some tough headwinds, but…

However, the Fed’s monetary policy is starting to put pressure on the global economy. Market analysts point out that the strength of the excessive dollar has created a significant imbalance in the global money market. In the past seven days, both the BOJ and BOE have had to intervene in their respective markets. The Fed was relatively alone as the only major central bank to tighten monetary policy. Therefore, market volatility will worsen. Yes, the Fed has an obligation to support the US economy. But is it possible for it to continue raising interest rates in a vacuum?

Robert Minter, director of ETF Investment Strategy at Abrdn, warns investors that the Fed has already made its policy mistake and the global economy is just waiting for the fallout. In this context, Minter said, “Many people are waiting for something to break on the sidelines. “When they see it broken, they will turn to gold,” he says. Minter is not alone in this. Ronald-Peter Stoeferle, Managing Director of Incrementum AG, says the strength of the US dollar will lead to a deep and severe recession. Gold still faces some tough headwinds. But in this environment, there is a growing counter-argument that holding some gold makes sense.

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