The Fed pivot will be good for gold in 2023, says Bank of America

It’s jobs Friday again. Equity bulls will be hoping for a nonfarm payrolls report that is sufficiently cool that it allows for the narrative of a less aggressive Federal Reserve to be sustained.

Underpinning the S&P 500’s 14% bounce from its mid-October trough are the recent retreats in bond yields and the dollar, moves that are evidently linked to Fed expectations. The dollar index DXY has broken below its 200-day moving average, while the 10-year Treasury yield TMUBMUSD10Y is threatening to fall through the floor of a year-long uptrend channel.The yellow metal on Thursday, as measured by the COMEX front month futures contract, jumped 3.1% to recover the $1,800 an ounce level.

And some weighty buyers have been showing their hand. Central bank purchases have rebounded in 2022, with monetary authorities in Turkey, Egypt, Iraq, India and Ireland all adding to their holdings, BofA observes. “While the U.S. central bank will in all likelihood keep tightening monetary policy, the pace of rate hikes should start to slow. This pivot will likely bring new investors into the market. As such, with physical demand already strong in some pockets, we believe gold prices should rally into 2H23,” BofA concludes.

The buzz The big data point on Friday is the monthly nonfarm payrolls report. Will it show signs that the labor market is wilting in the face of the Federal Reserve’s rate hikes?Economists forecast that a net 200,000 jobs were added in November, down from the 261,000 in October. The unemployment rate is expected to be steady at 3.7% and average hourly earnings growth is reckoned to have been 0.3% month-on-month, compared with 0.4%.

Speculation once again. We were promised $5k for gold not so long ago but it's still less than $2k. Go figure!

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