1. Market Review: On Thursday, spot gold briefly fell below the $1,830 level before ending the day with a small decline of 0.04%, closing at $1,836.06/oz. Silver initially fell but eventually rose to close with a 0.47% decline at $20.9/oz, after experiencing overall volatility throughout the day.
2. Summary of Fed Officials’ Speeches: Fed officials have indicated a potential pause in rate hikes in the summer. Fed board member Waller stated that if job and inflation data do not fall from their strong levels in January, the Fed may need to raise rates beyond the expected median of 5.1-5.4% from December. Atlanta Fed President Bostic reiterated his preference for a 25 basis point rate hike at the March policy meeting, but indicated the possibility of a pause in rate hikes in the summer.
3. US Weekly Jobless Claims Fall Again: The US labor market continues to show strength, which could prompt the Fed to continue rate hikes. The latest data shows no signs that significant job cuts, which have mainly occurred in the technology industry, are having a substantive impact on the labor market.
4. Surge in US and European Bond Yields: As a result of rising expectations of Fed rate hikes, the yield on the 10-year US Treasury note closed above the 4% level on Thursday, ending with a gain of 1.64% and marking the highest level since November 11th of last year. European bond yields have also surged due to expectations of rate hikes from the European Central Bank. The yield on the 10-year German government bond touched 2.77%, a new high since July 2011. The yield on the two-year German government bond touched a new high since October 2008, while the yield on the two-year Italian government bond touched a new high since August 2012.
5. According to a recent report by MSCI, the likelihood of a catastrophic US debt default is more than three times higher than at the beginning of the year.
In summary, these events will likely have a significant impact on the price of gold in the near future. Investors should closely monitor the evolving situation to make informed decisions regarding their investments.
OANDA analyst Ed Moya:
These Key Events Will Determine the Fate of Gold
Better-than-expected initial jobless claims data continued to boost bets on a Fed rate hike, leading to a sell-off in the bond market and pushing the 10-year US Treasury yield up to 4.06%, leaving gold in a predicament. Several important events will determine the fate of gold in the coming days. First, today’s ISM Services PMI index will provide insight into whether the economy will return to reality after a strong January. Second, Fed Chairman Powell will submit his semi-annual monetary report to Congress next Tuesday, and the non-farm payroll report will be released next Friday. Prior to these events, gold prices may stabilize within a range, with $1825 providing the first support and $1850 a strong resistance level.
Industrial and Commercial Bank of China:
Gold breaking through $1864 is the only sign of a downward trend ending
The market has fully digested the Fed’s latest hawkish comments, and higher terminal rate expectations have been further priced in, leading to three consecutive days of gains in precious metals. The weakening of the US dollar has offset the impact of rising US bond yields, allowing buying pressure to continue to dominate. After falling by around 12% in January, silver has accelerated its recovery following stronger-than-expected economic data from China. The gold-silver ratio has reached its highest level in nearly four months, approaching the high point of mid-October last year, but it is still not enough to reverse market sentiment. From the current trend, gold needs to break through $1864 and silver needs to break through $22 to signal the end of this downward trend.
As expectations for continued increases in US interest rates continue to rise, providing new support for the US dollar, gold prices are facing pressure. In addition, the rising yields on US Treasury bonds have increased opportunity costs and also put pressure on gold. While market expectations around the Fed’s stance may dominate gold prices in the short term, we believe that as the Fed pauses its rate hike cycle and the US dollar resumes its downward trend, the macroeconomic backdrop will continue to provide support for gold.
Sprott Money, a precious metals trader
Had a particularly bad February for COMEX gold. After the February 2 Thursday Federal Reserve and European Central Bank meetings, as well as the February 3 Friday US non-farm payroll report, gold saw a large bearish candlestick pattern. This type of reversal often signals the end of a gold rebound.
However, as February comes to an end, we have reason to believe the worst is behind us. It is expected that US economic data will deteriorate in 2023, leading to a clear recession. This trend may begin as early as next Friday’s non-farm payroll report. Nonetheless, we must also note the signals on the gold chart. First, COMEX gold is heavily oversold, with the RSI indicator dropping to a low of 28 last week. Second, although COMEX gold fell below the 50-day moving average a few weeks ago, the 200-day moving average continues to provide support. Gold has also found buying support above the important psychological level of $1800. Finally, although gold has generally been range-bound and consolidating since mid-2020, there have been several months of bad performance, such as February and July 2021, when monthly declines exceeded $100. However, prices did not fall significantly further after these months, instead gradually recovering.
In summary, as the delayed effects of the Federal Reserve’s unprecedented 2022 interest rate hike plan eventually take effect, the US is still marching towards a recession. Although COMEX gold prices may remain depressed for a few more months, investors willing to continue focusing on the big picture in 2023 and beyond will eventually be rewarded.