Gold Market Insights: A Glimpse Into Q4 Predictions

The World Gold Council recently published its “Gold Market Commentary,” outlining quarter-four predictions for the precious metal. Looking back, gold dropped by 3.7% during September, with its lowest hits happening during the last three days of the month. On October 4, the precious metal hit a seven-month low, only around $10 per ounce ahead of its yearly low hit in March.

According to the World Gold Council, most of gold’s late September and early October challenges came from a strong U.S. dollar, rising yields, and economic data increasing concerns over interest rate hikes. “The sell-off at the end of the month was also likely the result of a strong adverse reaction to U.S. economic data, a fall in the Chinese local premium and a negative technical breach,” the WGC report explained.

After bottoming out in early October, the trend reversed, and gold enjoyed a sharp performance increase. In the month of October, the precious metal gained 8.19%. This increase largely came from higher safe-haven demands from the war breaking out in the Middle East combined with more dovish statements coming from the Federal Reserve regarding interest rate hikes.

By October 30, gold futures closed trading at $2,005 per ounce, finally breaching the key $2,000 levels not seen since July. To put this into perspective, the precious metal spent most of September trading in the low- to mid-$1,900 range. Within a month, gold gained nearly $100 per ounce.

So, will this positive momentum continue into the fourth quarter?

Looking ahead, the World Gold Council expects bond yields to continue rising as the Federal Reserve and other central banks resist monetary change in the coming months. During September, the U.S. 10-year Treasury yield had already gained nearly 50bps. High bond yields increase the opportunity costs of investing in non-yielding assets like gold, so rising yields in the coming quarter could mean headwinds for the precious metal.

With that being said, the World Gold Council believes that the nation’s “underlying economic conditions remain buoyant, so a soft landing is still the consensus outcome.” A resilient economy, combined with rising yields, would likely create short-term volatility for gold.

“Yet, in our view, gold is more likely to experience choppiness than material weakness as support from a number of factors remains, including a poor risk reward for equities, rising recession risk over the next six to12 months, inflation volatility and central bank buying,” the World Gold Council explained.

Recession risks may also be heightened from the rising yields. The WGC believes yields may be constricting economic conditions and heightening financial risks in a similar way to what occurred in 2007.

At the same time, central bank buying has remained steady all year, offering critical support to gold prices. Despite factors like bond yields and the U.S. dollar pushing prices down, central bank demand offers the precious metal sustained demand rates.

Another major point to watch regarding gold’s performance in quarter four will be the Fed’s interest rate decisions. On November 1, the Federal Reserve decided to pause rates, as expected, and upgraded its economic assessment.

As with yields, high interest rates increase the opportunity costs of investing in gold. While the pause decision offered good news in the short term for the precious metal, most investors cared more about what committee members had to say about future rate cut decisions.

Jerome Powell, committee chair member, stated, “The process of getting inflation sustainably down to 2% has a long way to go.”

Rate cuts do not seem to be on the table at this point in time, at least not for 2023. “We may have underestimated the balance sheet strength of households and small businesses, and that may be part of it,” Powell explained.

Following these statements, gold prices dipped but remained relatively strong, with futures closing on November 1 at $1,991.40 per ounce. Moving ahead, one of the biggest influences affecting gold prices during the fourth quarter will be the upcoming rate decision on December 13. According to CME’s FedWatch Tool, there’s an 85.4% chance that the Federal Reserve will pause rates again, with a 14.6% chance of a rate hike.

“Gold is likely to face some choppiness over the next few weeks as rising real yields, a firmer U.S. dollar and a buoyant economy batter some sectors of investment demand. But longer-term concerns and continued central bank buying should, in our view, ensure that this turbulence doesn’t establish a more material downtrend. As such, this could present potential gold buying opportunities for some investors,” the World Gold Council concluded.

As always, investors should consult their advisors before making any portfolio decisions.

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