Gold remains undervalued as markets continue to price in a pivot in second half of 2023 – Quant Insights

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(Kitco News) – Despite a strong start in August, the Prayed The market has struggled to find sustained upside momentum as prices remain below $1,750/oz.

Market expectations of more aggressive monetary policy action by the Federal Reserve continue to support the US dollar, which weighs on Prayed; however, one market analyst said bullish momentum is building in the precious metal’s trade.

In an interview with Kitco News, Huw Roberts, head of research at Quant Insight, said that according to his company’s research, the precious metal has entered a macro regime and has broken below its fair value levels.

According to Quant Insight, with rising interest rates and a strong US dollar, Prayed prices should trade around $1,760 an ounce. Despite Prayed is about 2% below fair value, Roberts said traders could be waiting for a better entry point.

He added that gold has room to go lower as the Federal Reserve continues to raise interest rates throughout the year.

“You can’t argue that throughout 2022 the Fed has been consistent that inflation has become their number one priority and fighting inflation they need to tighten financial conditions,” he said.

Although it is a challenging environment for gold, Roberts said there is still potential for the precious metal. He explained that in July, markets prematurely began to expect the US central bank to turn around its aggressive monetary policy; however, Powell’s aggressive comments dashed that expectation. Markets see a 76% chance of a 75 basis point move later this month.

“Gold investors got excited about a dovish turnaround, and those expectations haven’t gone away; they’ve just been pushed back to the second half of 2023,” he said.

Although the market currently believes in the Fed’s aggressive stance on inflation, Roberts noted that a lot could happen in the next six months.

“Looking at current macro fundamentals, in the current environment, gold is undervalued but may still get cheaper. Our models tell us that investors might want to wait for a better entry point,” he said.



As for what’s driving the macro outlook for gold, in July, inflation was the biggest factor moving the precious metal; however, this month’s QI analysis shows that the market is much more balanced between inflation, currency valuations and corporate credit spreads.

Trying to interpret the data, Roberts said tighter financial conditions are driving up corporate debt, pointing to growing economic uncertainty. Rising high yield spreads show growing fears that the US economy is heading towards a recession.

“It’s almost as if in the last month, a perfect picture of Prayed has emerged. It’s acting as an inflation hedge and a risk hedge,” Roberts said. “If you’re looking for a safe haven, what are you going to buy? You can’t buy treasures due to inflation; you can’t buy currency for King Dollar, so Prayed It becomes a logical choice.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has gone to great lengths to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage arising from the use of this publication.

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