Could gold continue to rally as ETF investors continue to ignore the market?

Welcome to Kitco News’ Outlook 2023 series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into recession to calm inflation. Stay tuned to Kitco News to learn from the experts on how to navigate the turbulent financial markets in 2023.

(Kitco News) – The new year is proving to be a strong start for the gold market as prices end the week near a nine-month high.

The gold market has rebounded for five consecutive weeks with prices rising more than 5% in the first month of 2023. While there is a strong bullish sentiment in the market because there is still one part of the market missing.

Investors are still not jumping into the market, which is causing some analysts to wonder how sustainable this new high will be. While gold prices have risen 5% this year, data from the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares (NYSE: GLD), shows demand for the ETF continues to decline.

As of January 19, GLD’s gold holdings decreased by 5.21 tons. The question is: will the price follow broader investment demand, or will ETF purchases rise to reverse the bullish trend in the market? Outflows in the ETF market have slowed, but it’s not over yet.

At the same time, there are concerns that silver is not seeing the same bullish trend as gold. After outperforming gold during November and December, silver appears to be trading in the water at around $24 an ounce.

Silver’s lack of momentum is also a stark contrast to what’s happening in other industrial metals like copper, which is trading at a seven-month high of around $4.26 a pound.

It will take some time for these market differences to work themselves out. However, there are reasons to hope that investors will eventually see the value of owning precious metals.

This week Bank of America published a very bullish report on gold. Analysts said they expect the precious metal to be a primary asset for the next three years.

Bank of America is not alone in its optimistic outlook. In November, European fund manager HANetf surveyed 100 European and British wealth fund managers. According to the results, 89% of these respondents said they intend to increase their exposure to gold.

“It may now be the case that a lot of the negative sentiment towards gold has died down,” Tom Bailey, head of ETF research at HANetf, said in the report.

As for what is driving sentiment in precious metals, the biggest factor is the weakness of the US dollar. The US dollar index is down more than 10% since its 20-year high in September.

According to analysts, the US dollar is losing momentum as markets expect the Federal Reserve to slow down the aggressive tightening cycle. Markets have fully priced in the 25bp move from the US central bank next month.

In an exclusive interview with Kitco News, respected economist David Rosenberg said he expects the February meeting to be the Fed’s last hike. He added that the imminent recession would force the central bank to start cutting interest rates sometime in the second half of the year.

In this environment, gold is expected to be an attractive asset and see prices soar to new highs above $2,000 an ounce this year.

With so much bullish sentiment in the market, many analysts believe it is only a matter of time before investors turn back into gold.

On a final note, the Kitco News team would like to wish everyone a Happy Lunar New Year and a prosperous Year of the Rabbit for everyone.

Not giving an opinion: The opinions expressed in this article are those of the author and may not reflect the opinions of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will not be held liable for losses and/or damages arising from the use of this publication.

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