- The price of gold surges to $2,088.33, representing a substantial rally driven by US economic reports and dynamics in bond yields.
- Gold’s ascent gains momentum as mixed manufacturing PMI reports unfold, with ISM data pointing to a contraction in the US manufacturing sector.
- Gold’s appeal strengthens as US Treasury yields decline, propelling XAU/USD to achieve a new peak for the year-to-date.
In Friday’s North American session, the price of gold surged to a new year-to-date high of $2,088.33, propelled by the release of mixed economic data. S&P Global’s report indicated that the US economy is expanding, revealing the fastest improvement in manufacturing conditions since July 2022, with a Manufacturing PMI for February reaching 52.2, up from 50.7. Chris Williamson, Chief Business Economist at S&P Global, expressed optimism, stating, “Manufacturing is showing encouraging signs of pulling out of the malaise that has dogged the goods-producing sector over much of the past two years.”
On the contrary, the Institute for Supply Management (ISM) reported a contraction in manufacturing activity, with the ISM February Manufacturing PMI dropping to 47.8 from 49.1. Timothy Fiore, Chair of the Institute for Supply Management, highlighted, “The U.S. manufacturing sector continued to contract (and at a faster rate compared to January), with demand slowing, output easing and inputs remaining accommodative.”
This contrasting data fueled a notable increase in gold prices, as US Treasury bond yields fell on expectations of potential rate cuts happening sooner than initially anticipated. Consequently, XAU/USD experienced a robust rally, reaching a new year-to-date high of $2,087.45. The US 10-year Treasury bond yield declined by five and a half basis points to 4.197%, and real yields, measured by 10-year Treasury Inflation-Protected Securities (TIPS) yield, decreased from 1.934% to 1.878%. These developments exerted downward pressure on the US Dollar (USD).
Daily digest market movers: Gold price surges as US economy gives mixed signals
- After the release of the data, the CME FedWatch Tool, gauging interest rate probabilities, indicates that traders are anticipating the first cut in June, with the likelihood rising to 53.2% at the current moment.
- A slew of Federal Reserve speakers have crossed the wires.
- Atlanta Fed President Raphael Bostic expressed the view that the Federal Reserve will have to maintain higher interest rates for an extended duration.
- Federal Reserve Governor Chris Waller and Dallas Fed President Lorie Logan discussed the Federal Reserve’s balance sheet.
- Chicago Fed President Austan Goolsbee expressed bewilderment regarding the inflation rate in housing services and noted uncertainty about where interest rates might ultimately stabilize. During remarks on Thursday, he indicated that the current policy is restrictive, posing the question, “How long do we want to remain restrictive?”
- Richmond Fed President Thomas Barkin made hawkish comments, stating, “We will assess the possibility of rate cuts this year.” Barkin further mentioned that if the data continues to show inconsistencies, it should be taken into account, underscoring that he is not eager to expedite policy easing.
- San Francisco Fed President Mary Daly remarked that the Federal Reserve’s policy is currently well-positioned, and the institution stands prepared to reduce rates when the data necessitates such action.
- Atlanta Fed President Raphael Bostic stated that the initiation of rate cuts should be guided by economic data, suggesting the possibility of such cuts occurring in the summer, according to him. Bostic acknowledged the deceleration in inflation but emphasized the need to remain “vigilant and attentive.”
- During Wednesday’s session, New York Federal Reserve President John Williams mentioned that the decision on rate cuts will hinge on incoming data. He also highlighted that the central bank has made significant progress in curbing inflation towards the 2% target but emphasized that more efforts are required.
- Boston Fed Bank President Susan Collins anticipates a challenging journey for the Fed to reach the 2% target, citing tight labor market conditions and elevated inflation readings in January as contributing factors. Collins envisions that the Fed will commence interest rate reductions later in the year.
- Federal Reserve Governor Michelle Bowman, speaking on Tuesday, conveyed that she has no urgency to implement rate cuts. She cited potential upside risks to inflation that could impede progress or lead to a resurgence in price pressure. Bowman emphasized that the decline in inflation would be gradual, and she intends to adopt a cautious approach when contemplating future adjustments to the policy stance.
- Previous data releases in the week:
The Core PCE report from the US Bureau of Economic Analysis indicated a deceleration in annual figures, decreasing from 2.9% YoY in December to 2.8% YoY in January. Headline inflation also saw a slight dip from 2.6% to 2.4% YoY in January, aligning with consensus expectations.
For the week ending February 24, Initial Jobless Claims in the US stood at 215K, surpassing estimates of 210K and the previous reading of 202K. Housing data from the National Association of Realtors revealed a decline in Pending Home Sales from 5.7% MoM in January to -4.9%. Chicago PMI for February came in at 44.0, falling below the consensus of 48.0 and the previous reading of 46.
The Gross Domestic Product (GDP) for the final quarter of 2023 was reported at 3.2% YoY, slightly below the preliminary estimate of 3.3%. US Retail Sales Inventories rose by 0.3% MoM in January, below the previous month’s data of 0.4%, while Wholesale Inventories declined by -0.1% MoM, missing estimates of 0.1%.
US Durable Goods Orders experienced a drop of -6.1% MoM, surpassing the expected -4.5% contraction and the -0.3% dip observed in December. The S&P/Case Shiller Home Price Index for December rose by 6.1% YoY, exceeding estimates of 6% and November’s 5.4% reading. US New Home Sales increased by 1.5%, rising from 0.651M to 0.661M, falling short of the expected 0.68M.
The US Dollar Index (DXY), gauging the Greenback’s value against six major currencies, declined by 0.29%, reaching 103.85.
Looking ahead to next week, key data points include speeches from Fed officials, the ISM Services PMI, Factory Orders, Initial Jobless Claims, and Nonfarm Payrolls.
Technical analysis: Gold soars as buyers eye $2,100
Gold is experiencing a robust rally as it approaches the $2,100.00 mark. The precious metal has successfully surpassed significant resistance levels, including the psychological level of $2,050 and the February 1 high at $2,065.60. However, it is currently consolidating within the range of $2,065 to $2,090 as buyers take a momentary pause before potentially challenging the all-time high of $2,146.79.
On the downside, the initial support for XAU/USD stands at $2,065.60, followed by the $2,050 mark. Subsequent support levels include the February 16 swing low of $2,016.15 and the daily high-turned-support from October 27 at $2,009.42. If these levels are breached, it could expose critical technical support levels such as the 100-day Simple Moving Average (SMA) at $2,009.42, followed by the 200-day SMA at $1,968.00.
