As we approach the end of 2023, the year has proven less tumultuous and more subdued for gold, which remained relatively flat for a significant part of the period. Despite this, we’ve consistently emphasized the importance of patience to investors, acknowledging the market’s resilience in maintaining crucial support levels even amid the Federal Reserve’s assertive rate hikes.
The reward for this patience has finally manifested, showcasing the true brilliance of gold. Following a record monthly close in November, the precious metal has achieved new all-time highs, with February futures concluding the week around $2,090 per ounce. The week concluded with a robust gain of over 4%.
Gold’s ascent has been propelled by market expectations of a potential rate cut as early as March. At the beginning of the week, the likelihood of a rate cut by the end of the first quarter of 2024 was roughly 25%. By the weekend, these expectations surged to 52.5%.
Interestingly, the market seems to have tuned out the central bank, despite Fed Chair Powell’s clear communication that interest rates will remain stable for the foreseeable future. Axel Merk, President and Chief Investment Officer at Merk Investments, contextualized the current market environment. He highlighted that despite the Federal Reserve’s tough rhetoric, the economy is slowing down, signaling the central bank’s conclusion of interest rate hikes. Merk added that even if the worst-case scenario unfolds with slightly prolonged higher interest rates, the next move would inevitably be a cut.
“The market is always forward-looking, so we don’t actually need the Fed to start cutting rates for gold to move. There just needs to be the perception that it will happen,” Merk emphasized. “People are buying gold because they believe the downward pressure on rates is coming.”
While gold takes the spotlight, silver should not be overlooked. Silver prices have reached their highest levels since July, with March silver futures closing the week at $25.895 per ounce. Although silver may be trailing gold slightly leading into the weekend, it has been playing catch-up throughout most of November.
The gold/silver ratio currently hovers around 81 points, its lowest since mid-August. Analysts suggest that a rally in silver would signal the sustainability of higher gold prices.
Optimism surrounds silver as the market witnesses record industrial demand. Analysts point out that silver remains relatively inexpensive compared to gold, with the ratio still exceeding the historical average range between 50 and 60 points.
TD Securities is notably bullish on silver, projecting prices to reach $26 per ounce by the second quarter of the next year.
While gold and silver investors have reason to celebrate this weekend, it’s essential to note that the market appears somewhat overstretched, leaving room for potential selling pressure in the upcoming week.
Article generated from corporate media reports.
