According to market analysts at Société Générale, a mild recession in the US in 2023 will force the Federal Reserve to turn around in the second quarter of next year. According to State Street Global Advisors Chief Gold Strategist George Milling-Stanley, unprecedented benefits for gold are possible.
SocGen expects a Fed pivot
The French bank said on Thursday it made some major changes to its multi-asset portfolio ahead of the new year, putting it more heavily on sovereign debt compared to equities and commodities. The bank also announced that it had reduced its cash position to zero. Bank analysts make the following assessment:
Overall, the expected return will be more positive than in 2022, with a particular focus on Treasury, Emerging Markets and Credit. US technology is at risk. Also, Chinese assets are not inspiring. We think the clear possibility of a Fed pivot soon provides an opportunity to increase cheap quality credit and realign our strategy strongly towards cheap GM assets, from unhedged local currency bonds (mostly) to non-Chinese Asian equities.
Regarding how high the Fed Fund rate will go, economists say the market expects a final interest rate of close to 5% to be appropriate. They add that this will increase real interest rates from 1.5% to 2%. In addition, analysts say, “We believe that the return of the real Fed funds rate before the positive zone will be a policy error and will trigger much stronger volatility.”
“Gold stands as a precaution against risks”
SocGen is reducing its commodity holdings to 9% from 10% in September, while increasing government and corporate debt exposure. Gold still makes up the largest portion of the commodity position. However, the Bank reduced it to 6% from 7% in September. Analysts make the following statement:
Systemic risks are a common feature after such a series of policy tightenings. In our view, holding gold and CHF will likely help stabilize portfolio volatility.
SocGen’s 2023, 2024 and 2025 gold price predictions
The bank continues to maintain a solid position under it. However, next year it looks pretty bearish in terms of price. The French bank predicts that gold prices will drop to an average of $1,500 by the third quarter of next year. However, he expects prices to recover and average around $1,650 in the fourth quarter.
SocGen predicts that the development of gold will continue until 2024. Accordingly, he predicts an annual average price of around $1,800 for gold. Also, analysts predict prices will rise to $1,900 by 2025.
“Gold will probably recover”
State Street Global Advisors Chief Gold Strategist George Milling-Stanley says the US Dollar Index (DXY) has risen 10% over the year as investors turn to the dollar as a safe-haven during this ‘unprecedented uncertainty’ period. Based on this, he makes the following statement:
The dollar has been probably the single most reliable safe haven for the last hundred years. I think gold will probably recover. Also, I predict it will join the dollar by providing some safe-haven protection to investors throughout 2023.
Milling-Stanley argues that in addition to safe-haven demand, the strength of the US dollar is due to higher Federal Reserve interest rates and dovish monetary policy in other countries. In this context, he notes:
The most obvious reason for the strength of the US dollar is that the Fed has increased interest rates several times this year and significantly throughout 2022. There are several other reasons. One is that other countries around the world are deliberately doing their best to weaken their currencies.
“The performance of gold will be further supported by increasing investor demand”
cryptocoin.comAs you can follow from , the price of gold fell by 4% throughout the year. Despite this, Milling-Stanley says gold is performing well compared to other assets. He explains his view as follows:
The price of gold has dropped a little so far this year. However, so do both local and global stocks. So do both US and global bonds. Even the general commodity complex didn’t do that well.
Milling-Stanley claims that the performance of gold will be further supported by increasing investor demand. For this he says:
I think investment demand is doing very well. Demand for gold bars and coins around the world is doing extremely well.
Central Bank gold: Mysterious buyers?
The World Gold Council reported on November 1 that central bank gold purchases hit an all-time high in the third quarter. Milling-Stanley points out that central banks constitute ’10 to 15% of the total global gold demand’. Secret buyers made the majority of recent purchases. Some say China and Russia are these buyers. However, Milling-Stanley states that he doesn’t know and it will take some time before the data is released. The analyst also mentions:
Not everyone is diligent in reporting their gold purchases on time. Some countries prefer to keep some of their gold reserves in their treasury and not in their official reserves. This means that they do not have to report to the IMF. We’ve seen Japan do this from time to time. China has done this. Saudi Arabia has done this.
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