As the dollar and yields plummeted, gold extended its gains to over $2,000 on Tuesday as weak US economic data discouraged bets on slower rate hikes despite growing concerns about oil-driven inflation. He interprets the market and shares his predictions with the analyst.
These create a very positive backdrop for gold.
Increasing the attractiveness of gold, especially among traders holding other currencies, the dollar fell to the lowest level of job postings in the US in February in nearly two years. In addition, the dollar added new losses after data showing that factory orders also fell. According to David Meger, director of metal trading at High Ridge Futures, the slowdown in economic data and inflationary pressures remain high, creating very positive ground for gold.
The rise in oil prices this week following the surprise output cut by OPEC+ has helped zero-yield gold, traditionally preferred as a hedge against inflation, to escape the usual pressure of the possibility of a rate hike to rein in mounting price pressures.
If it exceeds this level the yellow metal will quickly go to ATH
Alexander Zumpfe, a precious metals dealer at Heraeus, points out the following level for the technical outlook for gold:
From a technical perspective, the gold price is likely to remain strong and stabilize at its current level or higher. $2,050 could be an important resistance level. However, if this level is exceeded, prices can quickly soar to an all-time high.
But Han Tan, chief market analyst at Exinity, says further rate hikes could cause gold to give back some of its recent gains.
Gold seems to be able to sustain the momentum this time
Analysts say gold is in a good position to sustain gains above the $2,000 level as weakening interest rate expectations reduce the opportunity cost of holding low-yield gold as a hedge against inflation and economic uncertainty. Independent analyst Ross Norman marks the following levels in his forecast:
It’s a ‘third time auspicious’ for gold to rise above $2,000 in both August 2000 and March 2022. This time, the economy seems to be able to maintain its momentum as dark clouds gather. Weak economic data shifts the emphasis from ‘reducing inflation to saving the broader economy’.
One-day ATH possible before the rally ends
Sprott Asset Management market strategist Paul Wong says the ICE US Dollar index is “on the verge of a major high and bond yields are also at a high”. Mutual funds and individual gold positions have little exposure to gold, according to the strategist. Wong notes that a lower US dollar and Treasury yields signal the Federal Reserve is ‘taking (at least) a break from fighting inflation while dealing with the banking crisis’, but that it is stagnant and not over.
Paul Wong expects prices to hit an all-time intraday high before the gold rally ends. The analyst said, “There are no sellers left. Physical buyers do not sell, and individuals have already sold with mutual funds,” he comments.
The figures, called “JOLTS”, showed that vacancies in the US economy declined in February. “We fell below 10 million vacancies for the first time since May 2021,” said Michael Hewso, chief market analyst at CMC Markets UK.
Fed’s tightening cycle may be over!
Gold reacted to the weakening dollar after a report showed that US job postings fell to less than ten million in February, to a low in nearly two years, according to the Job Postings and Workforce Turnover Survey. Andrew Hunter, deputy chief economist at Capital Economics USA, said:
The sharp drop in job postings in February shows labor demand has cooled even before the recent banking turmoil. It also provides one more reason to think the Fed’s tightening cycle is almost over.
Gold set its sights on record highs
All this proves the US economy is slowing, raising the possibility of a possible rate cut later this year, according to analysts. Edward Moya, senior market analyst at OANDA, comments on the latest developments as follows:
After things calmed down today, the likelihood of the Fed raising rates at its May meeting drops to a flip of a coin, while a rate cut remains priced in until the September meeting. If Wall Street becomes more convinced of a recession in the second half of this year, interest rate cut bets will rise.
Alongside the data, markets were trying to digest JPMorgan Chase CEO Jamie Dimon’s warning that the banking crisis was not over. “The current crisis is not over yet, and even when it is over, it will have repercussions in the years to come,” Dimon wrote in his 43-page annual letter. Edward Moya says gold is currently trying to approach record highs, and for that to happen, it may need more evidence that the economy is slowing. In addition, the analyst makes the following assessment:
Gold investors now need to see more evidence that the service sector portion of the economy is slowing. This could help keep the big rally going. Gold has set its sights on record highs and it may not take much to get there. If recession expectations continue to rise in the second half of the year, there may be a way for gold towards $2,100.
Investors can add gold to their portfolio
cryptocoin.comAs you can follow, the US Dollar came under pressure again, falling 2% in March. UBS economists expect the dollar to remain under pressure. Therefore, he advises investors to consider various steps to manage this decline. In this context, economists make the following statement:
We believe the main pillars of the US dollar’s strength over the past year (the Fed’s aggressive tightening and a resilient US economy) are unlikely to support the currency going forward. Non-US dollar investors should strengthen their underlying trends by hedging the currency or changing their holdings. This is a natural move for non-dollar-based investors who have large savings in the dollar and are at risk of depreciation. Investors can add gold to their portfolios. This is because the price of gold, measured in Dollars, tends to rise when the Dollar trade-weighted declines and U.S. interest rates decline.
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