The stars seem aligned for a new record on. The only question is when.
Perspectives
If the market fervor is warranted, a new all-time high for gold could be reached as early as Monday, provided March US jobs data, due Friday, is encouraging enough.
That means the non-farm payrolls report is set to show significantly weaker growth for the past month – in the range of 200,000 or even less – compared to the forecast of 239,000 and the comparison of 311,000. for the month of February.
Such a figure will ring alarm bells in the heads of economists – dramatically raising their recession forecasts – and signal to the Federal Reserve that the interest rate hike it carried out two weeks ago should be the last for the moment.
A Fed pullback at this point could be fatal for the dollar, sending the greenback below its recent lows and possibly dragging US bond yields lower as well.
The combination of all these factors could result in a gold rush as safe havens shine in investors’ flight to safety.
These are the prerequisites for a record high for gold, at least for now, and the aforementioned trigger would be a favorable NFP report on Friday.
However, the date remains Monday at the earliest, as COMEX gold futures will be closed for the Good Friday holiday when the NFP report is released.
Context
Gold’s bullish momentum has continued unabated over the past six weeks, rising from lows of $1,800 an ounce to over $2,000 on several occasions. COMEX futures, in particular, have settled above $2,000 for three consecutive sessions through Wednesday.
Gold Futures Daily Chart
If ever there was a time to set a new record, this is it. We can also expect a significant slowdown in employment growth in the United States.
Hiring in the private sector in March was down 44% from the previous month, sending signals of a potential recession even as it relieved inflation fighters at the Federal Reserve, who said job growth and wages must slow to stem the worst price pressures in four decades.
Business hiring rose by just 145,000 last month compared to growth of 261,000 in February, private payroll firm ADP said, posting a figure still lower than the growth of 210,000 forecast on average by economists surveyed by the American media.
Nela Richardson, ADP’s chief economist (EPA:), said in a statement,
“Our March jobs data is one of many signals that the economy is slowing. Employers are pulling back from a year of strong hiring and wage growth, after a three-month plateau, is starting to slow. to decrease”.
The private sector hiring data was released following another report on US job openings in February, which showed the weakest growth in nearly two years. Job postings rose to 9.9 million, the slowest pace of growth since May 2021, the Labor Department said in the report.
The March edition of the NFP is expected to show a slowdown of nearly 280,000 jobs from January’s growth of 517,000, raising further concerns about inflation in the United States.
Measured by the CPI (consumer price index), inflation reached its highest level in 40 years in June 2022, with an annual growth rate of 9.1%. It has since slowed, rising just 6.5% a year in February, its weakest expansion since October 2021. Even so, that rate is more than three times higher than the Fed’s target of 2% per year.
The Fed has raised interest rates by 475 basis points over the past 13 months, bringing them to a high of 5%, from just 0.25% after the COVID-19 outbreak in March 2020.
The central bank relied primarily on monthly nonfarm payrolls figures to set interest rates. The labor market has been the driving force behind the U.S. economic recovery from the COVID-19 outbreak, with hundreds of thousands of jobs being created continuously since June 2020 to offset the initial loss of 20 million jobs due to the pandemic.
The Fed has identified robust job and wage growth as two of the main drivers of inflation. Average monthly wages have risen steadily since May 2021.
Action needed in the market
According to Sunil Kumar Dixit, chief technical strategist at SKCharting.com, a further drop in the , towards the 100-week simple moving average of 100.20, would be conducive to gold’s bid for a new high. He stated :
“The continued weakness in the Dollar Index below the dynamically positioned 5-day exponential moving average, or EMA, at 101.70 remains intact. is recovering towards the daily average Bollinger Band of 102.60.”
“A break below the recent low of 101.09 could cause a quick drop towards 100.68 and 100.20. Both of these levels would greatly help gold in its quest for a record high.”
On the bond yield front, Dixit said that after seven straight days of declines, the site could experience a technical rebound.
“If the NFP report supports the dollar, yields could hit the 200-day simple moving average at 3.50.”
“We see a dip towards 3.15 and 3.05 as ideal conditions for gold’s uptrend to re-enter $2070, and soar towards $2090-2140.”
As for gold’s record high itself, Dixit said prices in the $2,090-$2,140 range could rewrite the existing all-time high of $2,072.90 in the bullion market.
Gold Spot Daily Chart
The record for COMEX gold futures is, meanwhile, $2,078.80. Dixit added, referring to spot gold:
“The steady support from the $1965 5-week exponential moving average and the $1990-$1980 horizontal support zone provided additional cushion for the big jump to the top.”
“The upside could be a bit erratic though, as a challenge is likely at $2,055, ahead of a retest of $2,070. The main breakout target could be $2,196.”
But what if the NFP report disappoints gold buyers? What could happen then?
“If the actual NFP numbers are above the 240k consensus, we could see the dollar index strengthen towards 102.50 and the 10-year bond yield rally towards 103.50.
“Gold will then experience a short-term correction towards the $1970-$1960 support areas before any further upside attempts.”
Disclaimer: Barani Krishnan uses a range of viewpoints other than his own to bring diversity to his market analysis. For the sake of neutrality, it sometimes presents opposing points of view and market variables. He does not hold positions in the commodities and securities he writes about.
