BBI INFO
1. Market review: On Wednesday, spot gold continued to rise and once approached US$1,845/oz, and finally closed up 0.61% to US$1,836.72/oz. Spot silver fluctuated sideways, and finally closed up 0.51%, to US$20.99/oz .
2. U.S. data hint at the risk of stagflation. The U.S. ISM manufacturing PMI recorded 47.7 in February, lower than the expected 48 and the previous value of 47.4. Among them, the ISM price payment data was much better than expected. At one point after the data, the Fed swap market priced in a September 2023 rate peak of 5.50%. In addition, according to CME “The probability of a 50-basis-point interest rate hike by the Federal Reserve on a monthly basis has risen to 30%.
3. Federal Reserve officials continue to emphasize the hawkish stance Minneapolis Fed President Kashkari said that the current inflation is not driven by the labor market, and he is open to raising interest rates by 25 basis points or 50 basis points at the next meeting. And tend to continue to raise interest rates. Atlanta Fed President Bostic said he still sees the need to raise rates to a range of 5.00% to 5.25% and to keep them there until 2024.
4. The Kansas City Fed warned in its economic bulletin that rent inflation may remain above pre-epidemic levels as long as the labor market remains tight. However, according to the Wall Street Journal, private-sector hiring information shows a recent slowdown in demand for workers from U.S. companies.
5. The strengthening of China’s manufacturing industry has brought risk sentiment back According to Caixin, Caixin’s China manufacturing PMI recorded 51.6 in February, rising to the expansion range for the first time since August 2022. The February manufacturing PMI released by the National Bureau of Statistics recorded 52.6. It was higher than the line of prosperity and contraction for two consecutive months, indicating that the manufacturing industry continued to rise. As China’s economic data boosted sentiment, both the onshore and offshore exchange rates of the renminbi regained the 6.9 mark, and non-US assets such as gold also rose.
MARKET VIEWPOINTS
Bloomberg columnist Eddie van der Walt
Gold prices have been falling since early February, driven by expectations that central banks will raise interest rates further. However, renewed gold purchases by central banks could be the last line of defense in preventing prices from plunging. Since April last year, retail and institutional investors have been bearish on gold prices, with gold ETF holdings falling by more than 400 tons. Typically, the investment sector is a key driver of prices. However, between November and January, prices and ETF holdings moved in opposite directions. Even for most of last year, the trend in gold prices was much more bullish than could be explained by factors such as fund flows, real yields and currency movements. A model based on inflation-adjusted U.S. Treasuries, U.S. indices, and ETF flows has a track record of accurately predicting gold prices. However, the price tag is $367 more than the model is worth. That’s largely because central banks are snapping up precious metals. They seem to be buying near $1800, a level that is exceptionally well supported. However, this does not guarantee that they will start selling at this price, as in September last year, this support was shaken and seemed to turn towards closer to $1600. Central banks, especially those in developing countries with large current account surpluses and large exposure to the US dollar, tend to be long-term hoarders of gold, as gold’s strong inverse correlation with the US dollar makes it a tool for hedging and portfolio diversification . At the right entry point, they see it as a long-term investment. The question then is at what level will they enter in the event of a pullback in gold prices, keeping the market supported.
Chris Weston, Head of Research, Pepperstone
The market will usher in a data storm in the next two weeks, and the US employment report (March 10) and inflation report (March 14) will be important factors affecting market trends. But ahead of that, Powell will deliver his semi-annual testimony before the Senate on March 7, which could trigger some market volatility first. Still, it’s not easy to trade with the data and Powell’s words in mind, as we’re fighting against trading algorithms programmed to react quickly to words. Therefore, ahead of the Fed’s March meeting, traders need to prepare for a possible sharp rise in intraday volatility. At present, the market generally expects that non-agricultural employment will increase by 200,000 in February, and the unemployment rate will rise from 3.4% to 3.5%. . Given that gold is strongly negatively correlated with U.S. nominal and real yields, the market may adjust interest rate exposure to the data, which could boost gold prices. Gold narrowly avoided a bearish engulfing pattern on a monthly basis after a sell-off as high as $100 in February. Maybe it’s improved demand and sellers haven’t been able to push the price to $1800, but it’s too early to tell and more dynamic price action is needed to really convince the bulls. Traders may consider buying above Tuesday’s high of 1831.15 to prepare for a continuation of higher prices. But we could see a price reversal and a retest of Tuesday’s lows. As with any momentum and trend strategy, we’re going to face a lot of false breakouts, so it’s important to stop losses early and get as much profit out of the trade as possible.
Kitco analyst Jim Wyckoff
Gold sees more short covering and bargain hunting
Gold was higher in midday US trading yesterday, while silver edged higher. After gold hit a nine-week low and silver hit a near four-month low on Tuesday, short-covering by short-term futures traders and firm bargain hunting by bulls became the main features of the market. A sharp mid-week drop in the U.S. dollar index also supported buying interest in metals markets. Bond yields are rising however, which is a bearish factor for the gold and silver markets. The U.S. stock market was mixed in midday trading. Risk appetite did not seem to heat up in March, but the risk sentiment was not strong. In addition, recent market underlying trends indicate that China’s economy will grow substantially this year, but continued tension in global geopolitical relations may partially offset the impact of economic growth on global markets.
Technically, April gold futures bears still have a small overall short-term technical advantage. A downtrend has emerged on the daily bar chart, but it is not obvious. Bulls’ next upside objective is closing prices above solid resistance at $1,881.40. The next short-term downside target for the bears is a breakdown of solid support at $1,800. First resistance is seen at yesterday’s high of $1852.50 and then at $1865. First support is seen at yesterday’s low of $1829.60 and then at $1820. Note: Gold April futures price is about $6.5 higher than spot gold.
OANDA analyst Ed Moya
Focus on whether gold can rebound to $1878
The U.S. ISM manufacturing PMI in February was still in the contraction zone, but the price payment index rose, indicating that costs will rise. With material costs appearing to be on the verge of rising and the Fed yet to see a real slowdown in demand, the case for further rate hikes has grown. Once we see the February job market report and possibly downward revisions for January, the chaos in March could lead to huge swings in the market. The February inflation report is also expected to edge lower, but any torrid price readings could keep the bond market sell-off going. But what is interesting is that U.S. bond yields soared, and the 10-year Treasury yield even rose above 4.00%, but the price of gold did not fall.
Gold traders appear to be increasingly convinced that they have fully priced in the extent of Fed tightening. There is still a lot of uncertainty ahead, but it appears that the dollar’s rally may not be as big as some traders initially thought. Gold has held $1800 and the question now is whether it can recover to the $1878 level.
