Market News

Gold Goes into Overdrive

March 7, 2024

Speculative positioning ahead of anticipated Fed rate cuts and a decline in the dollar have effectively combined to send the gold market into overdrive. The outcome of which is that gold has had a historical week, with the precious metal chalking up a new all-time high above $2150 for the spot contract.

That gold has pushed back beyond $2100 is not particularly surprising, however the speed, size and timing of the move perhaps is, given that not much has changed regarding the expected timing of anticipated Fed rate cuts. June is still the favoured month for when we could see the first rate cut(according to interest rate futures), and Fed Chairman Jerome Powell didn’t venture too far from the script of being ‘data dependant’ when assessing when the central bank may commence monetary policy loosening. The DXY (US Dollar Index) did slip 0.4% overnight however and is now 1.6% below its 2024 high just shy of the 105 level.

So, this slide in the greenback (and falling bond yields)has indeed contributed to gold becoming a more attractive investment option. Though gold has also garnered momentum from a sizeable uptick in speculative long positioning. Traders are anticipating the onset of a lower interest rate environment around the globe, and in such lower-yield conditions, gold generally starts to shine a little brighter. This surge in speculative positioning ahead of expected rate cuts has exacerbated the move in the gold price this week.

Whether the current gold market rally has further legs coulddepend on Friday’s NFP (Non-Farm Payrolls) outcome. US jobs data has tended toproduce a beat rather than a miss stretching back for the last two years, andif this trend continues it could at the very least give pause to the currentmomentum for the precious metal. A particularly strong NFP print could causethe gold price to backtrack.

In fact, 21 out of the last 25 NFP prints have beaten expectations. Which demonstrates why the US labour market has remained a source of inflationary pressure by remaining resilient despite the rate-hiking cycle from the FOMC. Expectations for the February NFP figures (due for release this Friday) are that we could see 200k jobs created, which would be a solid result albeit short of the bumper 353k result from January.

Th upcoming NFP result has the potential to influence the interest rate outlook and by extension the current record-breaking run of the gold market. Let’s see how it all plays out on Friday when the numbers are released, as financial markets and in particular the gold price react to the latest US jobs market indicators considering the moves seen this week so far.

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