Quiver Quantitative - Gold's (GLD (NYSE:GLD)) recent ascent to a record high above $2,350 an ounce before slightly retreating signals a fascinating juncture in the precious metals market, juxtaposed against the backdrop of an eagerly anticipated U.S. inflation report. The initial surge, which saw gold escalating as much as 1% during trading, was a response to traders speculating on the Federal Reserve's potential policy shift towards lower borrowing costs. However, the metal's inability to yield interest, coupled with climbing Treasury yields, saw its gains tempered during U.S. trading hours. The Fed's anticipated cut hinges on tangible signs of easing inflation, a factor that traditionally influences gold's performance negatively.
The situation is intriguing, given gold's sustained position well above $2,300, despite no clear catalyst driving its rally that started in mid-February. This rally, which coincided with a scaling back of expectations for aggressive rate cuts, leaves market analysts seeking explanations. The precious metal, traditionally seen as a haven in tumultuous times, has risen over 16% since February. Factors such as central bank demand, with China's central bank notably increasing its reserves for 17 consecutive months, have played a significant role in bolstering gold's value.
Market Overview: -Gold prices retreated slightly after hitting a fresh all-time high above $2,350 per ounce earlier on Monday. -Investors are shifting focus towards key US inflation data (CPI) expected on Wednesday.
Key Points: Inflation Data in Focus: Gold's rally paused as markets await Wednesday's US inflation data. -Higher inflation could bolster gold's appeal as a hedge, while lower figures might support the Federal Reserve's plans to cut rates, potentially weakening gold. Mixed Factors: Recent gains pushed gold above $2,300, with central bank buying and safe-haven demand from Middle Eastern tensions contributing to the surge. -However, the lack of a clear trigger and rising US Treasury yields (TLT) have created some uncertainty. Analyst Views Diverge: UBS raised its year-end gold price target to $2,500, citing potential ETF demand when the Fed cuts rates. -Conversely, TD (TSX:TD) Securities warns of a price reversal if safe-haven buying subsides.
Looking Ahead: -The US inflation data on Wednesday will be crucial in determining the near-term trajectory of gold prices. -Continued central bank buying and potential Fed rate cuts later this year could support further gains. -The evolution of geopolitical tensions in the Middle East will also be a factor to watch.
Internationally, gold has found support from increased demand as a safe haven, amidst ongoing tensions in the Middle East. Recent developments, including Israel's partial troop withdrawal from southern Gaza and the brewing conflict involving Iran and Hezbollah, have heightened the appeal of gold as a security asset. Furthermore, UBS (UBS) Group's upward revision of its year-end gold forecast to $2,500 an ounce reflects expectations of a continued bullish trend, propelled by a resurgence in demand for gold-backed ETFs and anticipated Fed rate cuts.
Despite these optimistic projections, a note of caution is sounded by TD Securities (TD), which anticipates a potential reversal in gold prices. This prediction is predicated on the belief that the current excess demand, driven by safe-haven buying, may wane in the absence of further escalations in Middle Eastern conflicts. As of late morning in New York, spot gold registered a modest decline, trading at $2,326.91 an ounce after reaching a peak of $2,353.95, with other precious metals like silver, platinum, and palladium witnessing a rise.
This article was originally published on Quiver Quantitative