Gold price sees another 5% rally this week as geopolitical uncertainty drives the market to


(Kitco News) – The gold market continues its unstoppable run to record highs as it touches an all-time high of $2,350 an ounce ahead of the weekend.

Gold’s latest rally comes after the U.S. economy created 303,000 jobs in March, significantly beating expectations. At the same time, unemployment dropped to 3.8%.  Despite the robust job growth, wages were relatively muted, rising 0.3%, in line with expectations.

Economists described the latest nonfarm payrolls data as a “blockbuster report,” which supports higher bond yields and relative strength of the U.S. dollar. Bond yields have risen as the market continues to shift their expectations regarding the start of the Federal Reserve’s easing cycle.

This past week, members of the Federal Open Market Committee have been fairly evasive on the topic of interest rate cuts. According to the CME FedWatch Tool, markets see a 54% chance of a rate cut in June. Last week, markets were pricing in a more than 60% chance of easing.

Analysts note this should be a hostile environment for gold; however, June gold futures last traded at $2,345.50 an ounce, up 1.60% on the day. The precious metal is up nearly 5% from last Friday.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that he suspects gold is attracting some safe-haven flows as geopolitical tensions in the Middle East heat up because of Israel’s war with Hamas in Gaza.

This week, Commander of Iran’s Revolutionary Guard, Gen. Hossein Salami, vowed retaliation after an airstrike on an Iranian diplomatic compound in Syria killed seven members of the military group, including two generals.

In a social media post, Marin Katusa, founder of Katusa Research, gold’s safe-haven bid.

 

Gold gunning for another record weekly close… On the precipice of war and dangerous geopolitical tensions, is telling us something. https://t.co/0SDhppwr6I

— Katusa Research (@KatusaResearch) April 5, 2024

At the same time, many analysts have said gold’s price action shows the precious metal has grown beyond traditional U.S. market sentiment and is being embraced as a global monetary metal.

“It could be that there is a drive to hedge against strong equities in the West, but I think the main story is people buying into weak China and looking to strong official sector demand,” said Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery.

However, Frappell said that he is cautious about gold at current levels as the price appears to have run too far too fast.

“The parabolic look of last week’s price action is concerning,” he added.

Robert Minter, Director of Investment Strategy at abrdn, said that in a world dominated by U.S. dollar strength, it remains prudent for central bank managers in emerging markets to diversify into gold. He added that this trend will continue to support gold prices at elevated levels and will eventually attract the attention of generalist investors.

Minter also said one reason why gold is seeing a robust rally is because the sellers’ market has dried up. Investors are no longer liquidating their gold-backed exchange-traded funds.

He added that it’s only a matter of time before investors get off the sidelines and back into the market, creating another leg up in this rally.

Although the Federal Reserve has been hesitant to signal the start of a new easing cycle, Minter said that it is clear the Fed’s next move is a cut.

“Regardless of timing or magnitude, the next Fed funds move is a cut, and historically, that led to 57%, 235%, and 69% gold price increases in 2000, 2006, and 2018,” he said.

Including Friday’s rally, gold is up roughly 17.5% after testing support at $2000 an ounce in mid-February.

“This rally has only just started,” Minter said.

Although U.S. economic data has taken a back seat in the gold market, important inflation data next week could create some volatility. Markets will pay some attention to March’s Consumer Price Index.

The U.S. dollar could also see further strength as the European Central Bank signals a rate cut this summer, beating the Federal Reserve to the easing cycle.

Economic data to watch next week:

Wednesday: US CPI, Bank of Canada monetary policy decision
Thursday: European Central Bank monetary policy decision, US Core PPI, weekly jobless claims
Friday: Preliminary University of Michigan Consumer Sentiment
 

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