(Kitco News) - Friday’s broken correlation between gold, the U.S. dollar, and bond yields could be sending the market an important message, according to one market analyst.
Gold fell sharply in its initial reaction to robust employment numbers, dropping roughly $10. However, the precious metal quickly recovered 30 minutes later, not only paring those losses but also pushing to session highs and nearing $2,700 an ounce. Spot gold last traded at $2,693.70 an ounce, up nearly 1% on the day.
In an interview with Kitco News, Kathy Lien, Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com, said that when trading big news events, traders should wait between five to 15 minutes to determine the true direction of the market.
Although the employment data showed that 256,000 jobs were created last month — pushing the unemployment rate to 4.1% and beating economists' expectations — Lien said it wasn’t enough to keep gold prices down.
Ahead of the data, markets were already expecting the Federal Reserve to leave interest rates unchanged when it meets later this month. Market expectations around the Federal Reserve’s easing path have continued to shift to the more hawkish side after the minutes of the December monetary policy meeting revealed that some central bankers see interest rates closer to neutral as the U.S. economy and labor market remain relatively healthy.
Lien noted that the price action in gold reflects a broader risk-off sentiment in equity markets. Despite the robust economic data, the S&P 500 is down 85 points, down more than 1% on the day, last trading at 5,832 points.
“ I think [gold price action] reflects what is happening in the stock market, which is that traders are worried about the rise in U.S. yields and the implications for the economy in terms of borrowing costs and the consequences for growth,” she said. “Not having more rate cuts from the Fed earlier in the year is going to lead to more pain later on.”
While gold is expected to remain fairly volatile through 2025 as it remains in a tug-of-war between U.S. monetary policy and safe-haven demand, Lien said she continues to look for opportunities to play the market on the upside.
“Generally, I am bullish on gold this year and would look for opportunities to buy rather than sell,” she said. “I would wait for a deeper correction to buy gold. I would like to buy it lower rather than higher, closer to the 2600 mark.”
While a strong U.S. dollar and higher bond yields pose a risk for gold in the near term, Lien said she expects safe-haven demand to be the bigger factor this year.
“ The risk of trade war, tariffs, all the geopolitical uncertainty is going to make investors nervous. It's going to pose ongoing risks for stocks. And I think all of that is going to be positive for gold,” she said.
Looking at the price action, Lien said she wouldn’t be surprised if gold tested support around $2,500 an ounce. However, on the upside, she sees prices pushing to $3,000 an ounce.
