Gold Hits New Heights Again

In a perfect world, the Fed would probably rather not be cutting rates at a time whilst inflation remains above the 2% target, but with the labour market getting the wobbles (with monthly non-farm payrolls figures averaging just 29k over the last three months) the central banks dovish turn last week with a rate cut, and probably more cuts to come by year-end, seems well justified.

While Powell’s messaging didn’t really deviate from the FOMC meeting last week, his mention of stocks being “fairly highly valued” did seem to catch the attention of the stock market and likely tempted investors to take some risk off the table. The three major US indices closed in the red on Tuesday having achieved new all-time highs during the prior session.

Speaking of hitting all-time highs, gold did just that yet again. Jerome Powell again highlighted that any inflationary impacts from tariffs are likely to be short lived in nature rather than enduring, which resulted in both the Dollar and treasury yields softening and enabled gold to notch up new highs. The spot price reached up to around the $3785 level, before easing back to $3763 as of Asian morning session trading hours on Wednesday.

The $3800 levels looks like it could be the next stop on gold’s historic ride higher this year, provided that the USD and bond yields remain subdued and while macroeconomic data keeps the Fed on a dovish course. Moderate support awaits at $3752 and $3722. But the key support which likely needs to hold in order to sustain the current run higher sits at $3610. On the top side, $3800 looms as a potential technical and psychological barrier, but only moderately so.

Oil remains rangebound, with US crude sitting roughly in the middle of the approximately $61-$65.50 range it has operated in for the last three months. The price shifted higher on Tuesday following delays to Kurdistan production entering the global market, but increased OPEC+ production levels are making it hard for crude prices to make a break-out move higher. Range trading conditions look to be in place until or unless prices move below $60 or above $66. Intermediate resistance awaits at $64.60 for US Crude, with support at $62.30.

Looking ahead, on the macro-data front we have US Final GDP figures due for release on Thursday which are expected to confirm that the US economy is growing at a healthy rate of 3.3%. While on Friday, we get to see the latest print for Tokyo Core CPI, which is expected to have increased from 2.5% to 2.8%. The closer that Japanese inflation moves back towards 3%, the more likely it is that we could get a BOJ (Bank of Japan) rate hike before year-end.

The most important data release of the week occurs on Friday when the US Core PCE Price Index is released. This is one of the Fed’s most closely watched gauges of inflation, so any significant deviation on either side of the 0.2% monthly increase which is expected could alter the amount of rate cuts expected by the US central bank in coming months. As such, how the cards fall with regards to the Core PCE number may have a big say in how the likes of gold, the USD and stock market sentiment are faring to end the week.

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