Soaring! Two positive factors encourage bulls, and gold prices hit a record high again

Spot gold markets were closed on Friday, March 29th, in observance of Good Friday. Gold prices hit a record high on Thursday and posted their best monthly performance in over three years, boosted by expectations of US interest rate cuts and strong safe-haven demand. Spot gold rose 1.74% on Thursday to $2232.78 an ounce, hitting a record high of $2236.05 intraday. Gold prices rose 9% in March, their best monthly performance since July 2020, and rose for the second consecutive quarter. US gold futures rose 1.2% to $2238.4 an ounce.

Interest rate cut expectations + safe-haven buying helped boost gold prices

TD Securities Commodities

Strategist Daniel Ghali said that traders "were adjusting positions ahead of the holiday, (increasing) trading activity ahead of the month-end and quarter-end," which boosted gold prices.

Ghali added that gold could rise further if the market begins to expect a larger rate cut in the Fed's rate-cutting cycle, and could potentially "hold these highs, but we are seeing signs of buying exhaustion recently."

Everett Millman, chief market analyst at Gainesville Coins, said another reason for the rise in gold prices is the "continued tense geopolitical situation globally," which could prompt investors to buy gold as a neutral reserve asset.

Focus on US PCE data

The US core personal consumption expenditures (PCE) price index will be released on Friday, which may help investors gauge the Fed's policy stance. The market currently expects the core PCE to be released on Friday to slow from 0.4% month-on-month to 0.3%, with the year-on-year growth rate still above the Fed's 2% target, expected to remain unchanged at 2.8%.

According to the CME Group's FedWatch tool, traders currently expect a 64% chance of a rate cut in June.

The US economy grew by 3.4% in Q4, exceeding expectations and continuing to lead the developed world

Overnight data showed that the US economy grew by 3.4% in the fourth quarter, exceeding expectations and continuing to lead the developed world, and the US dollar index remained very strong. The US dollar index rose 0.25% on Thursday to close at 104.55, hitting an intraday high of 104.73, its highest level in nearly a month and a half.

The US economy grew faster than previously expected in the fourth quarter, driven by strong consumer spending and business investment in non-residential construction such as factories and healthcare facilities.

A report released by the US Department of Commerce on Thursday also showed that corporate profits grew robustly in the previous quarter, driven by non-financial businesses. Rising profits, coupled with increased worker productivity, could encourage businesses to retain employees and extend the economic expansion.

The economy has shaken off recessionary fears, and while the pace of economic growth has slowed, it still outpaces other developed countries globally. Since March 2022, the Fed has raised interest rates by a cumulative 525 basis points to curb inflation.

The report also showed that core inflation pressures eased in the previous quarter, but did not change expectations that the Fed will begin cutting interest rates in June.

"The economy is in good shape," said Bill Adams, chief economist at Comerica Bank. "It's running more smoothly compared to the pandemic period and the period affected by the pandemic."

In its final estimate of fourth-quarter gross domestic product (GDP), the US Department of Commerce's Bureau of Economic Analysis said GDP grew at a 3.4% annual rate in the previous quarter, up from the previously reported 3.2%. This revision reflects upward revisions to consumer spending, business investment, and state and local government spending, offsetting downward revisions to inventory accumulation and exports. Economists surveyed by Reuters had previously expected no revision to the annualized growth rate of GDP.

Economic growth exceeded 1.8%, a pace that Fed officials believe will not spur faster inflation. Third-quarter growth was 4.9%, and 2023 economic growth was 2.5%, up from 1.9% in 2022. First-quarter growth is expected to be around 2.0%. Core inflation fell from 2.1% to 2.0% last quarter.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a rate of 3.3%, contributing 2.2 percentage points to GDP growth. The previously estimated growth rate was 3.0%. Service sector growth was revised upward. Another report from the Labor Department showed that the number of people filing initial claims for state unemployment benefits fell by 2,000 to 210,000, seasonally adjusted, in the week ended March 23. Economists had expected 212,000. Despite a series of high-profile layoffs earlier this year, applications for unemployment benefits have hovered between 200,000 and 213,000 since February. The report showed that continuing claims rose by 24,000 to 1.819 million in the week ended March 16. That week was within the survey period for the government's March nonfarm employment report.

The University of Michigan consumer sentiment index rose to its highest level since July 2021, climbing to 79.4, exceeding expectations of 76.5. Pending home sales rebounded in February, rising 1.6% month-on-month after plunging -4.7% in January, exceeding market expectations of 1.5%.

Focus on Fed Chair's speech

Also on Friday, attention will be on a speech by Fed Chair Powell at an event at the Federal Reserve Bank of San Francisco, on the topic of "Macroeconomics and Monetary Policy."

Federal Reserve Governor Christopher Waller said in a speech at the New York Economic Club on Wednesday that the Fed does not need to rush to cut interest rates. However, he remains hopeful about rate cuts, saying that "further progress in lowering inflation is expected to make it appropriate for the Fed to begin lowering the target range for the federal funds rate this year."

The Fed is expected to maintain a cautious approach to rate cuts, as starting too early or cutting too much could exacerbate price pressures again. At the same time, delaying rate cuts could put unnecessary pressure on the labor market and the economy.

Economists at Commerzbank said, "Even seemingly hawkish statements from the Fed don't seem to be affecting precious metals. Just on Wednesday, Fed Governor Christopher Waller stressed that recent economic data suggest a delay or reduction in the size of rate cuts. Therefore, the market seems to underestimate the risk of later and smaller US rate cuts. Although the median of the rate forecasts of senior Fed officials remained unchanged at the last meeting, the distribution shows that only a few need to raise their rate expectations to push up the median."

ANZ economists said, "The rise in gold prices suggests the market expects further declines in inflation should support central bank action to cut rates later this year, and safe-haven demand remains strong." "While we maintain a positive long-term outlook, a short-term pullback is possible. Price corrections are an opportunity to build long positions. We expect gold prices to approach $2300/oz by the end of 2024."

Due to the closure of the gold market on Friday, a gap may occur when the market opens on Monday, and investors need to be vigilant.