In the research report "Gold 2023 Outlook: The East Wind Can Be Borrowed, The Headwind Still Exists" released on November 14, 2022, we propose that the fundamentals of the gold market are expected to pick up in 2023, and prices may be depressed before rising.。However, warm and cold, the most easy to run。Gold prices have been on a sustained upward path for nearly three months since November as speculative markets priced ahead of Fed rate cuts and U.S. recession expectations。In our February 5, 2023 research report, "Gold: Expectations Revision, Headwinds Return," we propose that gold prices above $1,900 / oz include a more speculative premium, and that gold prices may face greater downward pressure in the short term as expected trading is verified by realistic data.。For now, gold prices have fallen for four consecutive weeks in February, with COMEX gold falling back to the $1815-1825 / oz range。This can also be confirmed by the global gold investment fund's capital holdings and CFTC gold speculation net long data, both holdings have risen rapidly since November last year, and then global funds from early February began to flow out of gold investment funds quickly, corresponding to the two inflection points of gold prices.。

Today, we suggest that short-term gold may continue to be weak, real interest rates down or need more fundamental data support, pricing models also show that the current gold is still overvalued risk。Looking ahead, the comprehensive CICC macro group for the year the U.S. economy or will enter a "shallow recession," CICC foreign exchange group for the year the U.S. dollar or strong and then weak, the impact of the diversification of the global monetary system or more long-term, CICC strategy group on the global financial market risk appetite or more than 2022 to pick up the judgment, we maintain a cautiously optimistic view of gold。In addition, we believe that in 2022 the central bank to buy gold demand may be a larger increase or did not change the pricing logic of gold, historically the central bank more price takers, rather than marginal pricing, also never "buy" gold price trend inflection point。Changes in the global monetary system persist, even if the geopolitical situation may support the long-term safe-haven demand for gold, we believe that this may also indirectly affect the gold market stock trading and the sensitivity of gold prices to U.S. bond rates.。For 2023, we suggest that gold may not be able to benefit from both the interest rate premium from the Fed's expected rate cut and the safe-haven support from the diversification of the monetary system.。

Expectations are still being revised, interest rate pressures remain, and risk aversion remains to be fulfilled

Recent market expectations for the Fed's monetary policy, the U.S. economic outlook and the corresponding decision of the U.S. debt rate expectations have recorded a significant correction, driving the price of gold down rapidly, our price deconstruction model shows that the speculative premium (residual) clearance contributed about 87% of the price decline since February。For now, we believe that the gold market may continue to be weak in the short term, as the downward trend in real interest rates may still need more fundamental data to support it。On the one hand, the Fed's monetary tightening process, although slowing down, but still not over, clear directional adjustment or need to wait for the March FOMC meeting and related macro data for further guidance;。Overlay interest rates imply that long-term inflation expectations are at historically high levels, or leave some upside for real interest rates。Pricing models also show that the current price of gold is still overvalued.。We believe that gold prices are likely to continue to return to fair prices until the triggers for fundamental changes occur, with market volatility coming from deviations in interest rate pricing.。

After the short-term speculative "run" and expected trading, we believe that the general direction of the recovery of gold fundamentals in 2023 has not changed, behind the support is the demand for safe-haven cash.。Since the beginning of the year, the actual situation of the U.S. economy is relatively better than market expectations, the labor market is still strong, retail consumption and economic sentiment index have signs of recovery, the market is expected to change economic growth, overseas gold ETF positions are basically stable, we believe that safe-haven support or has not yet arrived。With the U.S. still facing recession risk in 2023, we maintain the view that a trending upward trend in gold prices in 2023 may need to wait for gold safe-haven buying to occur, while stable rate cut expectations and a trending downward trend in real interest rates may also need to wait for further confirmation from economic downside data。

Speculative value recovery and long-term risk aversion benefits, there may be jet lag, 2023 may not be special

We believe that the likely large increase in global central bank demand for gold purchases in 2022 may not change the fundamental pricing logic of the gold market.。Since 2008, the global central bank has become a stable demand side of gold, we do not believe that it will neither put pressure on the supply side of the physical supply and demand of gold for the stock market, nor has it ever "bought" the trend inflection point of gold prices in history.。In addition, the trend towards an expanding and structurally diversified global monetary system persists, with longer-term implications, both for the dollar and for gold, and 2023 may not be special.。Even if the geopolitical situation that has not yet ended may bring some support to the long-term safe-haven demand for gold, such as the increase in the scale of trade settled in euros and yuan in commodity markets, we believe that this may also indirectly affect the stock of gold trading and the sensitivity of gold prices to U.S. bond rates.。For 2023, we suggest that gold may not be able to benefit from both the interest rate premium from the Fed's expected rate cut and the safe-haven support from the diversification of the monetary system.。

Price judgment: warm and cold, still need patience

In summary, we believe that the general direction of the recovery of gold fundamentals in 2023 has not changed, however, the first warm and cold, still need to be patient, short-term interest rate headwinds or will continue, maintain the annual outlook for 1H23 COMEX gold average price is located in 1650-1700 USD / oz judgment。In the benchmark scenario, we expect the COMEX gold price pivot to rise back to around $1,750 / oz at 2H23 if downward pressure on the U.S. economy becomes further evident and expectations of lower real interest rates are confirmed。It is worth noting that if the U.S. economy finally achieves a "soft landing," the safe-haven east wind fails to materialize as scheduled, which may curb the gold price rally in the second half of the year.。

(Authors: Guo Zhaohui and Li Linhui, CICC)