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How many times have you read or heard that gold is a safe haven for investors and traders? Numerous is probably the answer. High inflation figures recorded in most major economies seem to have boosted gold spot prices as demand has increased.  

Gold spot prices hovered around $1,884 per ounce on January 12th. Gold spot prices are 8.3% higher than 6 months ago as the commodity regains ground lost in August and September 2022. The question now is whether the rally will continue or whether any changes in the global economic environment could put a full stop to it.

Gold versus fiat currencies: what experienced analysts believe

“Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgit are mere memories” is one the quotes you might have read while browsing internet websites, searching for information on the precious metal. The person responsible for the quote is Richard Russell, author of the “Dow Theory Letters”, published in 1958. 

Richard Russell is the person who called the top of the bull market of 1946-1966 and the beginning of the great bull market, which started in December 1974 so perhaps his opinion has a particular significance. In this blog, we will share some important information on gold that beginner traders could find helpful and some insights coming from top banking institutions and analysts.

Gold: Safe haven and a valuable trading strategy diversification asset?

Gold has been used as natural money and a store of value throughout its long history. In times of market turmoil, investing or trading gold can help as a risk management tool, reducing portfolio losses. Gold serves as an inflation hedge in many major markets such as the United States, the United Kingdom, and others.

Gold is one of the most important and widely traded commodities. The gold market is valued for its historical significance and is used for trading and exchange of goods. It is currently valued at nearly $2.4 trillion. Gold’s value constantly fluctuates because it trades on public exchanges with a price determined by supply and demand.

Gold tends to have a higher probability of maintaining its value over a longer period of time compared to other asset types. As a result, it can be used as a hedge against inflation, which occurs when people’s purchasing power declines due to increases in the prices of goods and services. However, beginner traders should keep in mind that sometimes markets could move against their expectations. With this in mind, beginner traders should study markets, conduct thorough research and proceed cautiously, utilising risk management tools at their disposal.

Gold spot prices rise, but will they keep the momentum?

Gold spot prices seem to have kept the momentum of last year in 2023. On January 5th, gold spot prices stood at $1,839, whilst a week later (Jan.12th) gold spot prices came in at $1,884. Some analysts suggest that the precious metal’s spot prices could exceed levels recorded in mid-2020.

Depicted:Admirals MetaTrader 5 – XAUUSD Daily Chart captured on Jan.12th 2022. Date Range: September 8th 2022-January 12th 2023. Date Captured: January 12th 2023. Past Performance is not an indicator of future results.

Some banks expect gold spot prices to increase even more in 2023 

For example, a report published by Credit Suisse does not rule out a surge to the $2,300 mark. The bank’s report published on January 10th notes that “should the rally ever extend above the record highs from 2020 and 2022 at $2,070/2,075, this would be seen to mark a significant and long-term break higher, opening up we think $2,300 and likely beyond.”

Economists at Commerzbank note that US inflation data play a significant role when it comes to gold spot prices. As market participants expect December’s US CPI data release on January 12th, Commerzbank’s commodity analysts suggest that it could lend further tailwind to the yellow metal spot prices. “The market expects the inflation rate to have fallen from 7.1% to 6.5% – our economists even envisage a drop to 6.4%. The last time it was any lower was more than a year ago. US inflation data could lend further tailwind to the gold price given that the slowing of inflation that has been observed since the summer is likely to have continued last month,” is mentioned in their report.

Depicted: Admirals MetaTrader 5 – XAUUSD Monthly Chart captured on Jan.12th 2022. Date Range: September 1st 2015-January 12th 2023. Date Captured: January 12th 2023. Past Performance is not an indicator of future results.

Other analysts are not so optimistic, although they expect gold spot prices to hover around $1,890 in the first quarter of 2023. The last Erste Group Research report, published on January 9th, suggests that “real yields remain in negative territory in 1Q 2023 despite Fed rate hikes. This is a factor that favours a rising gold price. The expected slowdown in global economic growth and declining corporate earnings growth rates will boost safe-haven flows in gold. We expect a slight price increase to around $1,890 in Q1 2023.”

Risk management is essential in trading

When it comes to trading and investing, there are risks. If an asset’s price moves against your expectations, your strategy might fail, resulting in losing funds. Building your trading strategy should involve thorough market research. In addition, you should know how to use risk management tools provided by your broker.

When you effectively manage your risk, you take control of the amount of your money that may be lost on a trade or group of trades by limiting the total amount that can be lost. Managing your risks gives you the ability to reduce those risks, even if the worst-case scenario occurs.

Does trading on macroeconomic news interest you? Learn how this approach works with our free webinars. Meet and interact with expert traders. Watch and learn from live trading sessions.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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