Gold price inches from record highs, recession fears drive the market

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(Kitco News) Gold spent another day above $2,030 an ounce as prices eyed record highs, with recession fears driving market sentiment.

June Comex gold futures were last at $2,037 an ounce, flat on the day, after reaching a daily high of $2,049 — a 12-month high.

“Gold prices continued to rise, approaching the all-time maximum reached in the summer of 2020 when pandemic-induced uncertainty drove investors towards the safety of the precious metal,” said ActivTrades senior analyst Ricardo Evangelista. “This time around, the reasons behind investor anxieties can be attributed to fears of an economic slowdown.”

Recession risk intensified, with the latest data pointing to a slowdown in the economy. The ADP National Employment report revealed that U.S. private employers added fewer jobs than expected in March, with payrolls rising 145,000. This comes after U.S. job openings fell below ten million in February — their lowest level in nearly two years, according to the Job Openings and Labor Turnover Survey.

Also, the U.S. services sector slowed in March, with the Institute for Supply Management (ISM) showing non-manufacturing PMI falling to 51.2 last month.

Earlier this week, markets digested a decline in factory orders and slowing manufacturing activity.

“The banking crisis of March highlighted the negative impact that aggressive monetary tightening by central banks is having on the real economy. Economic data since published showed a slowdown in activity and confidence, with the recent announcement by OPEC plus, of its intention to cut production, likely to feed into inflation and contribute to further deterioration of investor sentiment,” Evangelista said.

Despite some Fed speakers still discussing more hikes, markets are pricing in an increased chance of a rate cut this year. There is around a 50% chance of a rate cut come July, according to the CME FedWatch Tool.

“The market conditions play right into gold’s hands with the precious metal further supported by a weakening of the U.S. dollar, against which gold typically enjoys an inverse relationship. Add in the likelihood of gold’s major headwind, rising Fed interest rates, coming to an end in the coming months, and the short to the medium-term course for the ultimate haven asset looks set fair,” said Kinesis Money market analyst Rupert Rowling.

Federal Reserve Bank of Cleveland President Loretta Mester said Tuesday that rates should rise above 5% and remain there for some time. But markets have been ignoring this type of hawkish rhetoric.

“Despite the growing traction of these views that the global economy may be heading for a serious contraction, central banks continue to shrug concerns aside, choosing to focus on fighting persistently high inflation through increasingly higher interest rates. Against this background, there may be scope for further gold price gains,” noted Evangelista.

All eyes are on the nonfarm payroll data to be released Friday. Market consensus calls are projecting for the U.S. economy to have added 240,000 positions after February’s 311,000.

“April is going to be volatile as jobs data is finally cracking, reflecting recessionary indicators in other markets,” said MKS PAMP metals strategist Nicky Shiels. “A Wall Street crisis is likely to morph into a Main Street crisis which will force the Fed to U-turn & reverse course on policy this year. A weak NFP print = no May hike.”