Home Forex Gold rally ends weekly gains, ahead of US NFP data

Gold rally ends weekly gains, ahead of US NFP data

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  • The price of gold catapults to $2,088.33, marking a significant recovery in response to US economic news and momentum in bond yields.
  • Mixed manufacturing PMI reports gold gains on ISM data suggesting contraction in US manufacturing sector.
  • Falling US Treasury yields are boosting gold's appeal, pushing XAU/USD to a new one-year high.

The price of gold soared to a fresh one-year high of $2,088.33 in the North American session on Friday after the release of mixed economic data as S&P Global unveiled the U.S. economy. United States is expanding. On the other hand, the Institute for Inventory Management (ISM) reported that manufacturing activity was falling, overshadowing the first report. XAU/USD exchanges hands at $2,084.89, up more than 2.3%.

On Friday, S&P Global revealed that manufacturing conditions improved at the fastest pace since July 2022. Manufacturing PMI for February was 52.2, up from 50.7. Chris Williamson, chief business economist at S&P Global, said: “Manufacturing is showing encouraging signs of emerging from the malaise that has dogged the goods manufacturing sector for much of the past two years.

Later, the ISM February Manufacturing PMI came in at 47.8, down from 49.1. Timothy Fiore, president of the Institute for Inventory Management, noted, “The US manufacturing sector continued to contract (and at a faster pace compared to January), with demand slowing, output easing and inputs remaining accommodative.”

The data boosted gold prices after U.S. Treasury yields fell on expectations that a rate cut could come sooner than expected.

Been said, XAU/USD prices embarked on an aggressive rally to hit a new YTD high of $2,087.45 as US Treasury yields fell. The 10-year US Treasury yield fell five and a half basis points (bps) to 4.197%, while real yields, as measured by the 10-year Treasury Inflation-Protected Securities (TIPS) yield, fell from 1.934% to 1.878%. All this weighed on the US dollar (USD).

Daily market roundup: Gold price surges as US economy gives mixed signals

  • Following the data, interest rate probabilities measured by the CME FedWatch Tool suggest traders expect the first cut in June, with odds rising to 53.2% at the time of writing.
  • Lots of Federal Reserve speakers have crossed wires.
  • Atlanta Fed President Raphael Bostic said the Fed would have to keep rates higher for longer.
  • Federal Reserve Governor Chris Waller and Dallas Fed President Lorie Logan talked about the Fed's balance sheet.
  • Chicago Fed President Austan Goolsbee said he was puzzled by the rate of housing services inflation, adding that he remained uncertain about where interest rates would settle. He said Thursday that the policy is restrictive and the question is, “How long do we want to stay restrictive.”
  • Richmond Fed President Thomas Barkin delivered hawkish remarks, saying, “We'll see if there is a rate cut this year.” Barkin added that if the numbers remain inconsistent, they should take that into account, stressing that he is in no rush to loosen the policy.
  • San Francisco Fed President Mary Daly said the Fed's policy was in a good place and the bank was ready to cut rates when the data called for it.
  • Atlanta Fed President Raphael Bostic said economic data should guide the Fed on when to start cutting rates, which he said could happen in the summer. Bostic acknowledged that inflation is slowing but must remain “vigilant and attentive.”
  • New York Federal Reserve President John Williams said on Wednesday that a decision to cut rates would depend on incoming data, saying the central bank had come a long way to bring inflation down to its 2% target, but there was still more work to do.
  • Boston Fed Bank President Susan Collins sees the Fed's path to 2% as bumpy due to tight labor market conditions and higher inflation in January. Collins expects the Fed to start cutting interest rates later this year.
  • Federal Reserve Governor Michelle Bowman said on Tuesday she was in no rush to cut rates, given inflationary risks that could stall progress or cause renewed price pressures. She added that inflation would fall “slowly” and she would remain “cautious in my approach to considering future changes in policy stance”.
  • Previous dates published in the week:
    • The US Bureau of Economic Analysis released its Core PCE report, where the annual reading slowed to 2.8% year-over-year in January from December's 2.9%. Headline inflation eased slightly from 2.6% to 2.4% in January, in line with consensus.
    • Initial US Jobless Claims for the week ended February 24 of 215,000 exceeded estimates of 210,000 and the previous figure of 202,000.
    • Housing data from the US was released by the National Association of Realtors. Pending property sales fell from 5.7% month-on-month in January to -4.9%.
    • The Chicago PMI came in at 44.0 in February, below the consensus of 48.0 and the previous reading of 46.
    • Gross domestic product (GDP) for the last quarter of 2023 showed 3.2% year-on-year, slightly below the preliminary estimate of 3.3%.
    • US retail sales rose 0.3% month-on-month in January, down from 0.4% in the previous month's data, while wholesale inventories fell 0.1% month-on-month, missing estimates of 0.1%.
    • US durable goods orders fell -6.1% month-on-month, more than the expected -4.5% decline and the -0.3% decline seen in December.
    • The S&P/Case Shiller Home Price Index rose 6.1% year-over-year in December, beating estimates of 6% and November's 5.4%.
    • US new home sales rose 1.5% from 0.651 million to 0.661 million, missing the 0.68 million expected.
  • The U.S. dollar index ( DXY ), which measures the greenback against six major currencies, fell 0.29% to 103.85.
  • Next week's data: Fed spokesman, ISM Services PMI, factory orders, initial jobless claims and non-farm payrolls.

Technical Analysis: Gold surges as buyers take notice of $2,100

Gold is rallying on its way to $2,100.00. It cleared several key resistance levels such as the psychological $2,050 level and the February 1 high at $2,065.60. Still, it is trading in the $2,065-$2,090 area as buyers take a breather before testing the all-time high of $2,146.79.

On the upside, XAU/USD's first support is at $2,065.60, followed by the $2,050 barrier. Once gold is cleared, the next floor would be the swing low of February 16 at $2,016.15 and the daily high-turned support of October 27 at $2,009.42. Once cleared, this will reveal key technical support levels such as the 100-day SMA at $2,009.42, followed by the 200-day SMA at $1,968.00.

Frequently asked questions about gold

Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, the precious metal, apart from its luster and use for jewelry, is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it does not rely on any particular issuer or government.

Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country's solvency. Central banks added 1,136 tons of gold to their reserves in 2022, worth around $70 billion, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold has an inverse correlation with the US dollar and US Treasuries, which are major reserves and safe-haven assets. When the dollar weakens, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets. Stock market rallies tend to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.

The price can fluctuate due to a wide variety of factors. Geopolitical instability or fears of a deep recession can quickly escalate the price of gold due to its safe-haven status. As a lower-yielding asset, gold tends to rise with lower interest rates, while the higher cost of money typically weighs on the yellow metal. Still, most moves depend on how the US dollar (USD) behaves when the asset is priced in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices up.

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