Subscribe to the market news you care about, the first time to push you the latest content, no longer miss HSBC unique investment analysis and insights. Go to the wealth management page of mobile banking APP “market information” section to subscribe immediately! International spot gold prices topped $1,900 an ounce ………… as the dollar fell and U.S. inflation slowed But our precious metals analysts believe the recent gold rally appears overdone. While a falling dollar may be the key to sustaining higher gold prices into 2023, high gold prices could weigh on physical demand Our precious metals analyst believes gold may need to consolidate in the near term after recent gains Thanks to a fall in the US consumer price index in December (6.5% on-year, compared with 7.1% in November), The combination of the dollar and falling U.S. real yields has spurred a recent rally in gold prices, pushing international spot gold above $1,900 an ounce for the first time since April 2022 (Bloomberg News, January 13, 2023). Evidence of price pressures in the US, particularly in core commodities, easing has helped boost risk sentiment and weaken the dollar, which has supported gold prices over the past few months. However, our precious metals analysts believe that after the recent sharp gains, gold may need to consolidate or even fall slightly in the short term. The dollar’s decline this year has helped gold Over the next 12 months, we expect the dollar to fall further , because the factors driving dollar strength in 2022 (hawkish Fed, slowing global growth and risk aversion) have either diminished or reversed. Our precious metals analyst believes a falling dollar is likely to provide strong support for gold prices in 2023 (Figure 1). 1. A falling dollar could be the key to keeping gold prices higher this year Sources: Bloomberg, HSBC Our precious metals analyst believes the correlation between gold prices and US real yields is likely to recover over time However, The Fed’s tightening cycle is likely to peak in the first quarter of 2023, which could partially offset the positive impact of the dollar’s decline on gold prices. Whether the Fed sees fit to cut rates later in 2023 or hold them steady, as Fed comments suggest, will further affect gold prices. Historically, the price of gold has been very sensitive to real US yields, particularly the 10-year Treasury yield; However, while this correlation has broken down somewhat in recent months (Figure 2), in part due to exceptionally strong underlying physical demand offsetting real US yields, our precious metals analysts expect correlations to recover as 2023 moves forward. 2. Gold prices do not seem to be tracking real US yields recently Sources: Bloomberg, HSBC Higher gold prices could dampen physical demand, while strong central bank demand could slow Finally, our precious metals analyst says, Higher gold prices could depress potential demand for jewelry and even gold bars and coins And slowing inflation could also reduce demand for coins, bars and other gold commodities, while strengthening Central bank demand May slow somewhat in 2023, but will remain at historically high levels thanks to Geopolitical risk and the need for portfolio diversification. For more highlights, follow HSBC’s wechat account (HSBC-China-rbWM). Due date: February 16, 2023 Disclosure Addendum and Disclaimer