Gold rallied on Wednesday as strong Chinese economic data smashed the dollar and some bets remain on better physical demand from the largest consumer of bullion. However, rising US interest rates limited the risk of gains. Analysts interpret the market and share their forecasts in the light of the latest data and developments.
“Gold market looks solid but cautious”
Spot gold rose 0.2% to $1,830.30, after hitting a two-month low in the previous session. U.S. gold futures were up 0.3% at $1,842.00. China’s manufacturing activity expanded in February at its fastest pace in more than a decade. Demand for physical gold in the main hub has soared this year as Covid-19 restrictions are eased. Independent analyst Ross Norman comments:
The market is cautiously optimistic about the recovery of the Chinese economy after strong data reversing the dollar’s rally. This increased gold and risky assets. Gold is clearly oversold and after finding technical support at $1,808 we are seeing a good bargain hunt at the bottom… the market looks solid but cautious with US inflation data being a constant driver.
“The next stop of the gold price may be this range”
cryptocoin.com As you follow, gold recorded its worst month since June 2021 in February after US data pointed to a resilient economy and a tight labor market. Traders expect the Fed’s target rate to peak at 5.425 percent in September from the current range of 4.50%-4.75%. Matt Simpson, senior market analyst at City Index, comments:
Gold is oversold in the near term as it finds support at its 200-day exponential moving average. Also, the US dollar is expected to pull back against its gains in February. Gold’s next stop could be the $1,850-1,860 region. At this point, we will be looking for another summit.
“Investors are looking for some shelter towards gold”
Rob Haworth, senior metal investment strategist at Bank Wealth Management, says a morning of “tough economic data” and some US dollar weakness are bolstering gold as prices bounce from 2023 lows despite high US interest rates. Weakness in US economic data is widespread across ‘consumer confidence, regional Fed job surveys from Chicago and Richmond, and home prices falling in December’, according to the analyst. Haworth also explains:
Market expectations reflect that the Federal Reserve will reach the federal funds rate target range of 5.25% to 5.5% by mid-year. However, as inflation continues to rise in surprise, investors are likely seeking some shelter below the inflation pressures in the commodity complex.
“The herd response to technical disruption will be very violent!”
Gold prices traded lower early Tuesday as surprisingly warm inflation data from France and Spain helped bolster expectations that the European Central Bank will raise interest rates by 50 basis points at its March meeting. Looking ahead, Insignia Consultants research director Chintan Karnani points out that the market will see February US employment figures and February US inflation figures before the Federal Open Market Committee’s policy decision on March 22. In a note, the analyst highlights the following:
Expect the unexpected in the next four weeks. The herd reaction to the news, to the technical breakdown in precious metals and base metals, to the technical disruption will be very violent. What was unexpected could be a combination of very low employment numbers in February as well as a downward trend in inflation. In addition, the Fed may surprise by saying that interest rate hikes will depend on economic data, contrary to its current stance, at its March 22 meeting.
Karnani says traders have had very wild reactions to so-called economic and policy surprises lately. According to the analyst, stop-loss tends to trigger both on the buy side and on the sell side on a given day.
