The U.S. dollar index recently hit a four-month low and prices are trending lower, to suggest still more downside pressure on the greenback in the coming weeks, or longer. U.S. 10-year Treasury note yields are back below 4% and trending down. The U.S. economy appears to be in a “goldilocks” position at present—whereby inflation is cooling and the economy appears to be growing steadily but is not too hot. The above factors should continue to favor the precious metals market bulls for at least the early of the coming new year.
Geopolitics is always near the front burner of the general marketplace. The Russia-Ukraine war and the Israel-Hamas conflict that continue to play out could at any time significantly escalate to involve other major countries and produce keen anxiety and risk aversion in the marketplace. Those are the “known unknowns.” There is always the specter of the “unknown unknowns” that can come out of the blue and quickly roil the marketplace. If either occurs, gold prices would likely quickly push strongly higher, including a new record high being set.
The potential bearish elements for the gold market in the coming months could be continued anemic economic growth in China, the world’s second-largest economy. Recent economic data out of China has been mostly downbeat, including a very troubled housing and property sector. China is a major consumer of metals.
Another bearish factor for the gold market is down-trending crude oil prices at present. In mid-December Nymex crude dropped to a nearly six-month low of $67.71 a barrel. As long as raw commodity sector leader crude oil sees its prices trending lower, any rallies in other commodity markets, including the metals, will very likely be limited.
The new year will find gold traders continuing to closely scrutinize the monetary policies of the major central banks of the world. Any resurgence of global inflation in 2024 would find the central banks quickly putting the brakes on their just recently more accommodative tone on money policies. Such a scenario would be a gold market rally-killer.
In the coming weeks, and barring any unexpected geopolitical flare-up, I see gold prices trading in a sideways range between $2,000 and $2,100. For the majority of 2024, I look for choppy trading in gold, but with a slight upside bias.
Stay tuned! Jim Wyckoff