High consumer prices are forcing the Fed to keep interest rates high for most of next year, according to analysts at Société Générale. Therefore, sustained high inflation will continue to be a headwind for gold. Here are the details…
Société Générale publishes its gold report
The French bank has released its updated commodity forecast. Analysts expect gold prices to fall to $1,550 an ounce by the third quarter of 2023 as real interest rates remain high. In their latest price predictions, analysts said, “Our US strategists expect the Fed to stop raising interest rates until the end of this year. “But he expects real rates to stay in positive territory until at least the third quarter.” It also uses the following expressions:
Between positive real rates in the US and rising rates in Europe, investors will likely shy away from non-yielding assets like gold. We expect a massive 200 ton outflow of gold ETF holdings. We expect the geopolitical risk around Ukraine to continue. However, market participants are integrating this risk into their strategies as the risk and consequences become a little more predictable.
The updated forecast comes as gold prices continue to struggle as the Fed is expected to continue its aggressive monetary policies through the end of the year and into next year. As we reported as Kriptokoin.com, the August Consumer Price Index showed how persistent inflation pressures are.
CPI rose to 8.3 percent
On Tuesday, the U.S. Department of Labor said its annual Consumer Price Index rose to 8.3% last month, significantly exceeding expectations. Economists had expected to see an 8.1% increase in August as energy prices fell. Although gasoline prices fell more than 10% last month, the report highlighted broad-based inflation in food, shelter and medical costs. Prior to the report, markets had expected the Fed to raise interest rates by 75 basis points. However, it has since kicked off the price with a full 1% move over the next week.
Markets are also seeing US interest rates rise as much as 5% in the first quarter of next year. While gold may struggle over the next 12 months, analysts at the French bank see a light at the end of the tunnel. Although market expectations changed dramatically on Tuesday, Société Générale said it saw the Fed halt rate hikes in the first quarter of next year. Analysts added that the US central bank could start lowering interest rates again by the end of the third quarter of 2023. Analysts used the following statements:
After the third quarter of 2023, gold’s fortunes should reverse as our economists expect a mild US recession and sluggish EU and Chinese growth in early 2024. Investors are likely to hedge such risks by transferring some of their allocations to gold.
What are the bank’s expectations?
The bank said it expects gold prices to rise to $1,650 by the end of next year and return to $1,900 by the end of 2024. Investment demand for gold-backed exchange-traded products will continue to be the dominant force in the market. Analysts at SocGen said further exits will continue to be a barrier on prices in 2023.
SocGen also noted that a resilient US economy that avoids a recession next year will put more pressure on gold prices as it will support the US dollar. However, a prolonged recession will provide some support for gold prices next year. Despite the gloomy outlook for most of 2023, SocGen sees some positive aspects in the gold market. Analysts said physical demand for the precious metal should increase by 3.8% next year as Indian and Chinese consumers re-enter the market.
The bank also expects central bank demand to provide critical support for the precious metal. “For 2023 and beyond, we believe that geopolitical factors and gold’s resilient performance in an economic turbulent environment should continue to encourage central banks to add gold, particularly those looking to reduce exposure to dollar-denominated portfolios.” says.
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