Should you buy the gold high?
By Paul Reid
24 May 2023
The world economy is showing a lot of uncertainty right now, causing traders to either take a break or put too much guesswork into their forecasting. In times of such uncertainty, gold has been a haven space to park wealth, but we are seeing gold holding in a high range already, and a recession or downturn hasn’t even started. And then there’s the U.S. debt ceiling cracking under pressure. Will XAUUSD rise even higher or is it too late?
Gold outlook for 2023
Gold is one of the best-performing assets in 2023 for a reason. After a heavy dip in February, gold made a 14% rebounded up to near ATHs. This week we saw a downward correction, now trading at $1,975 per ounce, and some traders are wondering whether to buy or not. Is there more bullish momentum to come?
The independent provider of global investment research and advice, BCA Research Inc. sees gold climbing to the $2,200 level within 9 to 16 months, further claiming that $2200 is where gold should already be, based on their models.
Strong gold or weak dollar?
Gold's primary driver is the U.S. dollar, which has been weak for a while and considered by many to be overvalued by as much as 20%. Balance will eventually be restored, but such corrections usually happen because of a catalyst. What’s driving USD and making gold such an attractive investment?
Another key driver for XAUUSD will be U.S. inflation data versus inflation expectations. There is a disconnect between what's happening to inflation and where inflation is heading, and this is making forecasting XAUUSD particularly difficult. In market history, gold has proven time and again its ability to keep value. If the U.S. is facing an aggressive downturn and inflation remains sticky, another breakout for gold is something to watch out for.
U.S. Debt ceiling
The U.S. has never defaulted on its debt, but some believe it might this time. If a country defaults on its debt, the currency collapses. Treasury Secretary Janet Yellen warns that the chance of a U.S. default scenario is around 10%, and the U.S. could run out of money by June 1. She also warns that if the U.S. debt ceiling is not lifted, it could trigger a constitutional crisis.
Negotiations for raising the debt ceiling are currently at an impasse. The House of Representatives passed a bill in April that would raise the debt ceiling, conditionally on extensive spending cuts, but U.S. President Joe Biden rejected that. If nothing is resolved by the deadline, watch out for volatile dollar depreciation as investors move to haven assets such as gold.
Gold is high, which is a bad time to go long… normally. There are no credible theories that would suggest gold will fall any time soon, but there’s plenty of “cause & effect” data to suggest a rise. So yes, gold is high, but it could go higher.
As the U.S. economy weakens and the debt ceiling issues unveil the depth of the U.S. financials, those still invested in U.S.-based assets may start to get cold feet as the June deadline approaches. While Bitcoin is also expected to absorb some of the market shift, gold still has a better reputation than crypto.
Additionally, gold has a physical purpose that is tied to society. It has its own industrial demand, which includes medical, electronics, automotive, defense, and aerospace industries. Demand is rising, but world production is falling. Experts are saying that we may have already discovered and mined all of the world's major gold deposits.
The rate of gold mine discoveries has declined over the past three decades, despite miners pumping money into exploration. The market impact of approaching a “cap range” on gold will surely cause scarcity sentiment and may boost gold prices significantly.
Both gold and U.S.-related assets demand your attention and deep analysis. To get real-time price notifications and breaking news about gold, USD, and other assets, consider installing the Exness Trade app. You can even access your trading account on your mobile and trade from anywhere.
If you are planning to trade gold, a trading app is the fastest way to react to the markets.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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