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Gold’s skyrocketing rally came crashing down after the Fed Chair Jerome Powell’s aggressive comments pushed the greenback up and sent Treasury yields surging.
Not one to go down without a fight, the US dollar index saw a whopping 0.5% increase, making gold more expensive for non-US investors.
Investors are now eyeing key jobs readings for clues on the Fed’s next move, as the shimmering metal’s strength has been fueled by a cocktail of factors, from government and central bank buying surge to geopolitical uncertainty due to upcoming elections.
“Gold is the superhero of the moment – fighting off inflation, paving the way for rate cuts, and battling the uncertainty caused by costly wars” said Jo Harmendjian, portfolio manager at Tiberius Group AG, in an interview with Bloomberg.
The Rollercoaster Bullion Ride
Gold has made a colossal 600% climb since the new millennium, yet when adjusted for inflation, it still lags behind the $850 high reached in January 1980, which, in today’s dollars, would equate to a heart-stopping $3,000.
The enigmatic yellow metal usually dances inversely with bond yields, pirouetting in decline as interest rates perk up, offering a more seductive alternative to gold, which doesn’t pay interest, and leaping skyward as they plummet.
Its value has soared over 10% since the start of October, thanks to the nosediving Treasury yields and dollar, fueled by mounting expectations for US rate cuts. The swaps markets are now betting with more than 50% certainty on a reduction in March and are pricing in a cut in May.
However, some analysts argued that gold’s triumphant surge to a fresh record high was overcooked, and prices nosedived to a rate of $2,023.67 an ounce in New York.
“The rapid movement seen early on Monday seems to be propelled by stop-loss orders,” warned Kelvin Wong, a senior market analyst at Oanda Asia Pacific Pte Ltd., hinting at a possibility of short-term pullback.
Many investors have stayed on the sidelines as gold soared, raising the prospect of further rallies as latecomers scramble to get in on the action. Investors in gold via exchange-traded funds, which have been key drivers of previous gold bull markets, have been torching their holdings for most of this year, with stocks plummeting by over a fifth from their 2020 peak.
“Current market positioning is lean compared to previous times the prices tested these levels,” noted Wayne Gordon and Giovanni Staunovo, UBS Group AG strategists, emphasizing the need for an influx of investment demand for even higher prices from this high base, specifically in the form of increased ETF purchases.
(With files from Bloomberg)