Gold Price RECAP: December 16-20

Gold prices experienced a rollercoaster week, driven by two key macroeconomic events: the US inflation data release and the FOMC meeting. On Tuesday, the CPI report showed a slower-than-expected increase in both core and overall inflation, leading to an initial surge in gold prices as investors anticipated a dovish Fed response. However, the market's enthusiasm waned later in the day as the Fed's communication emphasized its commitment to tightening financial conditions until inflation has truly started to fall. This shift led to a softening of gold's rally and a rebound in the US Dollar. The FOMC meeting on Wednesday saw the Fed slow its rate increase as expected but emphasize its determination to restrain the economy, with projections for higher unemployment and slower growth in 2023. Despite the initial optimism, gold prices ultimately lost their temporary grip above $1800/oz but still held good gains for the week.

Gold's performance in the last week of 2022 was influenced by a mix of risk appetite and market sentiment. Despite a strong start to December, gold prices softened on Monday as risk appetite rose, with investors optimistic about the US-China trade deal and UK's Brexit progress. However, gold rebounded on Tuesday following the release of the US CPI report, which showed a slowdown in inflation. This triggered a risk-off sentiment, boosting gold prices to a peak above $1820/oz. Wednesday's FOMC meeting saw the Fed slow its rate increase, but emphasize further tightening, leading to a softening of gold's gains. Thursday and Friday saw gold prices consolidate these gains, with the yellow metal trading around $1814/oz.



The US Dollar's strength or weakness significantly influenced gold prices in the week of December 16-20, 2022. According to the World Gold Council, a weaker US dollar was the dominant contributor to gold's positive return in December, accounting for 70% of the monthly gain. The US Dollar Index (DXY) fell below its 200-day moving average for the first time since June 2021, signaling a potential reversal of its late September rally. This move lower in the DXY contributed to gold's recovery in Q4, as a weaker dollar makes gold cheaper for foreign buyers, increasing demand and driving up prices.

Gold prices rose during the week of December 16-20, 2022, despite a strong US dollar and rising interest rates. The yellow metal gained 3.4% to reach $1,814/oz, marking a 0.4% year-to-date gain. This performance was driven by a weaker US dollar, which fell below its 200-day moving average for the first time since June 2021. The strong move lower in the DXY appeared to be a major contributor to gold's recovery in Q4. Additionally, gold was supported by a solid gain in COMEX futures net long positions.

Gold's performance in December 2022 was a late-year surge, with a 3% gain taking it to US$1,814/oz, cementing a y-o-y gain of 0.4%. This was a notable turnaround from earlier expectations, as gold had been expected to struggle due to an unprecedented rise in rates and a strong US dollar. However, gold's stable and uncorrelated performance amid market turbulence was evident, with weak institutional demand offset by strong retail investment driven by inflation and geopolitics, and exceptional central bank net buying. This aligns with historical trends showing gold's ability to counterbalance diverse sources of demand and supply, providing stable portfolio-additive performance.

Central bank activity, particularly net buying, played a significant role in gold's performance during the period of December 16-20. According to the World Gold Council, central banks had an exceptional year of net buying in 2022, offsetting weak institutional demand. This trend continued into December, with gold posting a 3% gain, driven largely by a weaker US dollar. Central banks' appetite for gold as a safe-haven asset and a hedge against inflation contributed to the metal's stable performance, despite an unprecedented rise in rates and a strong US dollar.

In conclusion, gold prices experienced a volatile week, driven by macroeconomic events and influenced by risk appetite, market sentiment, and the US Dollar's strength or weakness. Despite initial optimism, gold prices ultimately held good gains for the week, supported by a weaker US dollar and strong retail investment. Central bank net buying also played a significant role in gold's stable performance. As we move into 2023, investors should continue to monitor these factors and their impact on gold prices.