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Metals Insights: Gauging gold's path: three factors to consider

Commentaries & Views

On the heels of the March banking crisis, Gold rallied through the psychological $2000 mark for the first time in a year. It broadly held within the range of $2000 or higher for two months before decisively surrendering it on May 18th. Is Gold still in a bull market digesting a healthy consolidation before making its next run, or is this a repeat of the August 2020 and March 2022 failures?

Only time will tell, but generally, there are three factors I am watching to help me determine Gold's path. 

Fundamentally, the Federal Reserve could bring renewed headwinds for the precious metal if it stays on course with its forecasted terminal rate as of the June 14th policy meeting, calling for 5.6%. However, the market is not buying the Fed's forecast. The CME Group's FedWatch Tool is signaling only a 6.9% chance the Fed's target rate reaches 5.6%, while the remaining odds favor a lower rate. If the FedWatch Tool holds true, it will likely become a bullish tailwind to Gold. Weaker-than-expected jobs data would help support such a narrative. 

Additionally, we are watching the CFTC Commitment of Traders, which shows speculative Managed Money longs reduced their position by 15% since the April peak, and Producers have reduced their short hedges by 22% since the peak. This tells us any type of renewed trend higher has room to invite fresh speculative buying, whereas the producers would rather have more upside from current levels. 

Lastly, the previous record high of 1911 in September 2011 will help stand as a guardrail of understanding momentum. If this level is surrendered, that historical pattern from the August 2020 and March 2022 failures has a higher probability of playing out. 

What we do know, is that the coming months will be exciting for the precious metals complex. 

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