Gold and silver markets got off to a strong start in the first few days of trading this year before coming under selling pressure on Thursday – only to bounce back on Friday morning.
A superficially strong jobs report has raised expectations of further rate hikes by the Federal Reserve and boosted the US dollar in FX markets. Metal futures traders reacted knee-jerk by hitting the sell button yesterday, only to reverse and buy today.
Investors often look to the first few trading days of a new year for clues as to market trends that may be unfolding for the remainder of the year.
Financial report: US stocks fell sharply on Thursday as new signs of a tight labor market fueled fears that the Federal Reserve will keep interest rates high longer than expected.
Financial News Reporter: No real indication of what the Fed envisions for the next February 1st meeting, but in December they saw an economy that was still running too hot in terms of jobs and inflation that was still unacceptably high. But they faced concerns that they faced two risks with most of the credit stimulus they introduced to hit the economy. First, under-tighten and let inflation and expectations rise too much. Over-tighten and risk a recession.
The big economic themes of 2022 were rising inflation and rising interest rates. They have teamed up to create miserable conditions for investors in conventional financial markets.
Interest rates are likely to peak in 2023 as the Fed slows and then stops raising rates. Central bankers are expected to hike rates by a smaller quarter point at their next meeting in February.
Some observers see further interest rate hikes for the Fed given a low official unemployment rate and a still elevated inflation rate. But Wall Street and Washington, DC have signaled they can’t take much more interest rate pain.
It could be done for the Fed in 2023. There’s even a chance that Jerome Powell and company might start cutting interest rates later in the year if the economy falters badly.
As for inflation, it’s widely forecast to decline from its double-digit peaks in 2022 — in large part because higher borrowing costs for consumers and businesses are expected to depress demand for goods and services.
However, there is also the potential for supply-side price upward pressures. Some energy and commodity market analysts are warning of impending price spikes due to a lack of investment in new production combined with geopolitical rifts in Russia.
Stagnation could be an important issue for 2023. In such an environment, both equity and bond markets are likely to continue to struggle. Precious metals, meanwhile, are likely to continue to outperform. Gold and silver each posted modest gains in 2022, although financial assets posted deep losses.
Investors should also expect the unexpected. Markets, which are inherently unpredictable, tend to defy popular expectations and produce results that leave uncovered investors vulnerable.
Central banks around the world purchased bullion at a record pace last year. Official purchases of physical gold are likely to offer something of a floor below prices in 2023.
It remains to be seen whether gold will gain popularity among regular investors as a safe haven this year. Unfortunately, the public will only be interested in a big way after gold has started a record run. Then a possible mania phase could follow.
Meanwhile, gold and silver will continue to fill a key niche in a balanced investment portfolio in 2023 and beyond.
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