(Kitco News) - Is gold ready to take a breath next week after hitting record highs?
After an impressive seven-day rally, which pushed prices to an all-time high of $2,203, the gold market could see some consolidation in the near term; however, many analysts agree that this is not the end of gold’s uptrend.
Although gold is ending the week down from Friday’s highs, it has still seen its best performance since July 2020. April gold futures last traded at $2,184.80 an ounce, up more than 4% from last Friday.
Gold’s minor retreat from its record highs comes as TD Securities announced it was taking profits on its month-long tactical long trade for a 7% gain. Although prices can move higher from current levels, they will face higher volatility.
Chris Vecchio, Head of Futures & Forex at Tastylive.com, said that he has also exited his gold trade as he looks for the market to take some time to “catch its breath.”
He said this is only the start of gold’s rally; however, he added that it is important to recognize when to take profits.
“Everyone's talking about gold’s record high in U.S. dollar terms, but it's also at a record high in every other currency terms,” he said. “It's not just a dollar story. This is a global issue that is supporting the market. Gold seems to be moving in anticipation of the fact that we're going to be having lower rates around the world. At the same time, debt levels everywhere are rising to unstainable levels.”
Gold managed to hit $2,200 an ounce following disappointing employment numbers. Although the U.S. economy created 275,000 jobs last month, there were significant downward revisions to January’s and December’s employment numbers.
At the same time, the unemployment rate rose to 3.9%, and wages grew less than expected. Analysts said the employment data reduces inflation concerns and gives the Federal Reserve room to lower interest rates in June.
“The data has confirmed that the Fed must take some action, and traders have already increased their bearish bets on the dollar index, which is positive for the gold price. We think that now the gold price year-end target of $2,300 looks much more promising,” said Naeem Aslam, chief investment officer at Zaye Capital Markets
Currently, markets see a more than 70% chance of the Federal Reserve easing in June.
Another factor that is helping to support gold’s rally is that investors are still reluctant to jump on the momentum. Gold has rallied to record highs even as the market has seen further outflows in gold-backed exchange-traded funds.
Gold is making new alltime-highs.
Calls that Ronnie received from journalists, media and ex-girlfriends: ZERO
Great sign! #breakout #showdown #IGWT #IGWT24— Ronnie Stoeferle (@RonStoeferle) March 6, 2024
Although gold is benefiting from potential Fed Rate cuts, Nicky Shiels, head of metals strategy at MKS PAMP, said there is no specific catalyst for this rally, which bodes well for the continued uptrend.
Shiels noted that there is more going on in the market than can be seen in known flows.
“Technically, gold's runup has started from a higher base, with a similar 7-day runup/trajectory to past price peaks. However, even if there is not a standalone catalyst this time around, respect the cold-hearted rally; it's so clear there is a persistent & stealth buying program in place given the price action,” she said in a recent note. “ALL the known flows noted this past week have been sales (ETFs, some physical and producer selling) which is still no match for all the unknown purchasing flows.”
Although gold is expected to remain in a strong uptrend, some analysts note that it could be sensitive to some profit-taking.
“Gold has rallied before the [ducks] had lined up properly. On one hand, that’s a very bullish sign, while on the other hand, raising some concerns the rally has primarily been driven by speculators who we know are not married to their positions and may seek a quick divorce if things do not turn out as planned,” said Ole Hansen, head of commodity strategy at Saxo Bank.
The biggest event risk for gold next week is the February Consumer Price Index report; hotter-than-expected inflation could create some selling pressure for the precious metal.
“Gold bulls are certainly in a position of power thanks to fundamental forces with further upside on the cards if the dollar continues to weaken along with Treasury yields. It may be worth keeping a close eye on the string of top US releases in the week ahead, including the latest CPI report,” said Lukman Otunuga, senior research analyst at FXTM. “Talking technicals, gold is trading around uncharted territories with the next psychological level at $2,200. Should bulls decide to take a breather, this could spark a decline back towards $2,150.”
While CPI data will be the main focus next week, markets will also receive the Producer Price Index, retail sales numbers, and regional manufacturing data.
Economic data for next week:
Tuesday: US CPI
Thursday: US PPI, Retail sales, weekly unemployment claims
Friday: Empire State manufacturing data, University of Michigan Consumer Sentiment
