Gold is on track for record highs
Gold prices increased modestly on Wednesday, moving closer to a record high seen in 2020 as more indications of declining economic growth fuelled interest in the yellow metal as a safe haven. The markets largely disregarded Chairwoman of the Fed of Cleveland Loretta Mester’s remarks that US interest rates will continue to rise despite economic weakness.
Mester further predicted that rates will persist above 5% for an extended period of time. Tuesday saw a 2% increase in the price of gold after US employment openings in February fell to their lowest level in nearly two years.
Increasing consensus that the Fed is nearing the end of its inflation-fighting hikes in interest rates provides weight to the bullish outlook for the price of non-yielding gold. In reality, the markets are currently pricing in a 50/50 chance of a 25 bps rate hike at the next Federal Open Market Committee (FOMC) conference in May, as well as the possibility of rate reduction by the end of December.
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The predictions were confirmed by weakened macro data from the US on Tuesday, which showed that the number of job openings in February fell to the lowest level in nearly two years. Weak economic data also contributed to heightened concerns of an impending recession, which drove safe haven flows into gold.
Focus is shifting to NFP
Since early May, gold prices have been on a tear, as concerns of a banking catastrophe have prompted safe-haven investments in bullion as well. Fears of any lingering blemishes on the economy bolstered the demand for gold, despite the fact that government intervention quelled fears of more severe banking turmoil. Dollar weakness supported the majority of precious metals as well.
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Following the overnight decline, US Treasury bond yields acquire some positive impetus, which helps the US dollar rebound from its lowest level since early February, reached on Wednesday. This, in turn, prevents investors from placing aggressive wagers on the gold price denominated in US dollars. Before positioning for further gains, traders appear reluctant and prefer to move sideways ahead of Friday’s publication of the crucial US monthly employment report, commonly known as the NFP report.
The outlook remains bullish
The price of gold is creating new highs and higher lows. Currently, the $2,000 level appears to be stable and is forming a new support.
The 200 day average is far below the trading zone. The short term support could be seen at levels from the previous week at $1,950. The bulls are working hard against the bears and are aiming towards the $2,100 region for the main resistance.
In case a serious event changes the outlook, a bear action could take the price lower towards the 200 day average. However, for the time being, the yellow metal is looking bullish.
Gold 1D chart, source: tradingview.com, author’s analysis
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