ASX 200 gold shares soared on Wednesday, but could a 'pivot point' for the gold price be on the way?
Gold producers on the ASX 200 include Evolution Mining Ltd (ASX: EVN), Newcrest Mining Ltd (ASX: NCM), and Northern Star Resources Ltd (ASX: NST).
Evolution shares surged 8.1% yesterday, while Newcrest Mining shares leapt 6.49%. The Northern Star Resources share price gained 3.99%.
It follows a rise in the spot price of gold which is hovering around its highest level in six months.
Let's check the outlook for the gold price.
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What's ahead for gold?
Evolution Mining, Newcrest Mining, and Northern Star Resources are all major gold producers. Certainly, the price of gold can impact their cash inflows from gold sales.
Now ANZ commodity strategists Daniel Hynes and Soni Kumari contend gold appears to be at another "pivot point" amid easing inflation.
Hynes and Kumari noted lower-than-expected inflation in the US is putting downward pressure on the US dollar. In an ANZ research report, analysts commented:
This, along with lower real yields, is allowing gold to retest USD1,800/oz. Tactical positioning is largely driving investment demand, but strategic buying of gold ETFs hasn't emerged. Central bank purchases are robust.
The strategists also noted gold performs predictably around recessions "with some exceptions". Hynes and Kumari said:
We expect the US to enter a recession in 2023, with GDP falling to 0.2% y/y and contracting by 0.8% q/q in Q3. The economic growth outlook is compounded by weakness in Europe as it faces ongoing geopolitical risks and energy shortages.
This backdrop is typically positive for gold. Gold prices tend to come under pressure ahead of recessions, with returns over the six months before a recession averaging 2%. It then tends to outperform equities during recessions, with average returns of 16%. For the six months after a recession, gold continues to deliver decent gain.
Meanwhile, City Index senior market analyst Matt Simpson has estimated a gold price in 2023 of between US$1600 and US$1900. In comments to the Motley Fool, he noted central banks in China and India are forecast to "continue providing support" for gold in 2023. However, he added:
Yet with the Fed likely to go above 5% interest rates and hold them there, it should cap upside potential for gold.
We therefore expect a 'below average' high-to-low range next year. Cycles suggest gold may have printed an important low in September, and enjoy buying pressure in the first half of 2023.
Our estimate range for gold in 2023 is $1600-$1900.
