(Kitco News) - The gold market is ending the week at another all-time high as disappointing economic data has given the Federal Reserve the green light to renew its easing cycle.
The puzzle investors are now trying to figure out is how much easing the gold market has already priced in, as the precious metal closes the week solidly above $3,600 an ounce. Spot prices last traded at $3,644.60 an ounce, up 1.6% from last Friday.
Meanwhile, silver has extended its breakout rally as it looks to end the week at another 14-year high above $42 an ounce. Spot silver last traded at $42.11 an ounce, up nearly 3% on the week.
Jesse Colombo, an independent precious metals analyst and founder of the BubbleBubble Report, said that gold is not just reacting to expected easing from the Federal Reserve, but also to the uncertainty surrounding U.S. monetary policy as President Donald Trump and his administration continue to push for lower interest rates.
Colombo noted that a significantly weaker U.S. labor market and the growing threat of a recession mean the new easing cycle could push rates down by as much as another 100 basis points. However, he added that the risk is the Federal Reserve ends up overreacting.
“The loss of Fed independence means that we could see a lot more easing than is necessary,” he said. “All this confusion will continue to support higher gold prices.”
Robert Minter, Director of ETF Strategy at abrdn, said the Federal Reserve’s current easing path of modest rate cuts will continue to support gold’s technical breakout to $3,700 an ounce. However, he added that the risks for gold are solidly to the upside, as there is a chance that the Fed could be more aggressive than expected.
He noted that, given yields on the two-year note, there is justification for the Federal Reserve to lower the Fed funds rate by 100 basis points through year-end. The question becomes: what will those moves look like?
Minter said there is a case to be made for the Federal Reserve to surprise markets with a 50-basis point cut following the updated labor market data, which showed a sharp contraction in job growth.
This past week, preliminary revisions to U.S. employment subtracted nearly one million jobs—three times lower than the 10-year average and the worst print on record.
“A 50 basis point cut is traditionally seen as a panic move, but they have an excuse with the data to make a bigger move, and they come out and say that they are trying to get ahead of any recession threat,” he said. “They could also signal more rate cuts than expected through 2026. The gold market has not priced in this dovish scenario and that could send gold prices a lot higher than our target at $3,700.”
According to the CME FedWatch Tool, markets see only a 5% chance of a 50-basis point move next week. Meanwhile, in March, the Federal Reserve’s updated economic projections showed expectations of only two rate cuts next year.
While dovish expectations are building, some analysts note that this could pose a near-term risk for gold if these whisper numbers on Wall Street are not met.
Lukman Otunuga, Senior Market Analyst at FXTM, said that a 50-basis point move next week could easily send gold prices above $3,700 an ounce. However, he also noted that investors should temper their enthusiasm.
“Since a 25-basis point cut is widely expected, it’s all about the updated dot plot, which may dictate whether gold is able to extend gains or experiences a period of consolidation. Markets are expecting another 50 basis points worth of cuts beyond September. The dot plot needs to match or exceed these expectations to keep gold prices buoyed. Anything less could trigger a technical correction,” he said. “Looking at the charts, should bulls secure a daily close above $3,650, prices may retest $3,675 and $3,700. However, weakness below $3,650 could send prices toward $3,600 and $3,570.”
Michael Brown, Senior Market Analyst at Pepperstone, said there is concern that markets are overshooting Fed easing as inflation remains elevated. He added that it is unlikely the Federal Reserve will cut interest rates by 50 basis points next week.
“In many ways, I think it is likely that the Fed disappoints relative to expectations, as further cuts will depend on how the outlook evolves, while the dots will likely remain unchanged, signalling a median expectation for 50bp of easing in total this year. With markets discounting about 70bp of cuts, that gives scope for a knee-jerk hawkish reaction, leading to downside in stocks, bonds & gold,” he said.
However, despite any near-term volatility and selling pressure, Brown said that he remains bullish on gold.
“I’d still be viewing any dips in bullion as buying opportunities as reserve allocators continue to diversify, and as the independence of the Fed continues to be eroded,” he said.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that he is also looking past any near-term weakness, as the precious metal’s overall technical momentum could push prices to $3,800 an ounce.
“The question many are now asking is whether the rate cut will be a ‘sell the fact’ moment,” he said. “I think it might be, but overall it does not alter—only strengthen—the bullish narrative, so any retracement imo is a buy.”
While the market remains focused on the Federal Reserve’s monetary policy meeting, next week will also be a busy one for other central banks.
The Bank of Canada will meet on Wednesday morning, and markets are expecting a 25-basis point cut. Meanwhile, the Bank of England meets on Thursday, with markets looking for no change in rates.
Finally, last on the list, the Bank of Japan is also expected to leave interest rates unchanged on Thursday.
Economic data to watch next week:
Monday: US Empire State Manufacturing Survey
Tuesday: US Retail Sales
Wednesday: US Housing Starts and Building Permits, Bank of Canada monetary policy decision, Federal Reserve monetary policy decision
Thursday: Bank of England monetary policy decision, US weekly jobless claims, Philly Fed Manufacturing Survey, Bank of Japan monetary policy decision
