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(Kitco News) – It”s been another hectic week for the gold market, but despite robust bullish optimism, the precious metal is just not ready to break to new all-time highs… or below $2,000.
Friday started fairly predictable, with the expected profit-taking after a three-day rally pushed gold prices to a fresh 13-month high above $2,050 an ounce. However, that profit-taking turned into a significant retreat as economic data has helped to solidify expectations that the Federal Reserve remains on track to raise interest rates another 25 basis points next month.
At one point Friday, gold prices were down more than 2% on the session, giving up all of its weekly gains. While the price action was pretty dismal, there is still reason to remain optimistic; despite the solid selling pressure, gold has managed to hold support above $2,000 an ounce heading into the weekend.
Heading into the weekend, gold prices last traded at $2,020 an ounce, roughly unchanged from last Thursday”s close ahead of the Easter long weekend.
Looking through Friday”s volatility, the precious metal remains on track to hit all-time highs above $2,075 an ounce sometime this year; it will just not happen in the near term.
The latest economic data also points to investors taking a more nuanced position in gold. This week everyone was paying attention to the inflation number and while consumer prices continue to trend lower, there are still some concerning trends in the economy.
Tuesday, the U.S. Labor Department said annual inflation rose 5% in March, down sharply from a 6% rise in February. However, core consumer prices, which exclude energy and food costs, were unchanged at 5.6%. The Federal Reserve now has to deal with the threat that higher inflation is becoming embedded in the broader economy.
The same trend was observed in the U.S. Producer Price Index (PPI). Headline wholesale prices rose 2.7% for the year, down sharply from 4.6% in February. However, core inflation remained unchanged at 3.4%.
The challenge for gold is that inflation is still enough of a threat that the Federal Reserve will have to raise interest rates again in May.
“Why have gold’s multiple bullish demand drivers merely supported the price? It’s because they’re still being offset by Fed-led inflation-targeting rate hikes,” said Liberum analyst Tom Price in an interview with Kitco News” Anna Golubova.
The positive news for gold is the Federal Reserve could be forced to end its current tightening cycle after May. Despite stubborn inflation, markets still see the U.S. central bank cutting rates in the second half of the year.
Last month”s banking crisis demonstrated that U.S. monetary policy is pushing financial markets and the economy to the breaking point. Even the International Monetary Fund is raising recession warning flags, saying that the global economy is on track for a “hard landing” if interest rates remain higher for longer.
This week the IMF said that it sees global GDP expanding 2.8% this year, down a tick from its January estimates.
Despite the persistent inflation threat, markets still see the Federal Reserve cutting interest rates in the second half of the year; these expectations are building a solid floor in the gold market. Currency analysts note that a peak in interest rates next month will keep the U.S. dollar in its current downtrend, creating a further tailwind for the precious metal.
Despite Friday”s correction, analysts note that gold is still in a solid uptrend above $1,960 to $1,950 an ounce.
That”s it for this week. Have a great weekend
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
