Note from the MD: Market makes cautious gains as economic data looms

It’s been a cautious week for markets, ahead of key economic data, with slow gains made overnight. The ASX 200 edged up 0.4% higher, closing at 6958.9 points, its third straight day of growth.

It’s been a cautious week for markets, ahead of key economic data, with slow gains made overnight. The ASX 200 edged up 0.4% higher, closing at 6958.9 points, its third straight day of growth.

This was largely on the back of the major banks and big movers such as companies specifically involved with lithium, including Pilbara Limited (+4.42%) and Allkem Limited (+3.34%).

Indeed, lithium is one of the few commodity sectors that have been performing well. Crude oil was choppy (-2.82%) and natural gas was down 8.35%. Gold was up 2.18% but, overall, is down 10% for the year and 20% below the $2,000 level seen in early March.

All in all, it seems the market is wary of a number of key economic factors. A global squeeze of monetary tightening regimes has led to a persistent situation of high inflation and rising interest rates, with the very real threat of a recession.

After a big run earlier in the year, a strong US dollar and rising interest rates have dragged the price of gold down to pre pandemic levels. Investors are wondering what happened, if the commodity is still a hedge against inflation and equities, what will drive the gold price in 2023 and what moves everyone will see in the market as a response.

There is also gold’s relationship with the US dollar, which is at two-decade highs against its rivals, making greenback-priced bullion more expensive for buyers holding other currencies. As such, gold is trading at seven-month lows.

The markets may be pre-emptively cautious based on big US data announcements on Thursday, with jobless and inflation numbers coming out. There are also the US midterm elections happening right now, which appear very close, of which the market could be wary.

In local data news, consumer confidence has fallen by a considerable 6.9% in November. This is just above the very low levels that were hit at the start of the pandemic in April 2020.

Seven straight RBA rate hikes, a lift in the cost of living and concern that unemployment may rise have all added to this drop in Aussie consumer confidence. As such, 40% of consumers have said they will rein in spending over Christmas.

House price expectations also plunged 8%, to be close to the low reached during the 2018-19 price correction. Labour market sentiment has also started to weaken.

It’s not all doom and gloom though. While the Aussie index is still down 6.5% for the year, it’s important to remember that the trend is upwards, as the XJO is just 10% below all-time market highs.

To answer these questions we have invited fund managers, analysts and industry insiders from some of the biggest gold companies, to discuss trends in the market and how to identify potential opportunities. Click here to join part one of our two part The Insider: Future of Gold Summit on Thursday 17th November at 12pm (AEDT).

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Sources:

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