Gold futures settled at their highest on record Friday, as weakness in some U.S. economic data helped pull the dollar and Treasury yields lower, boosting the precious metal’s investment appeal.
The “golden rally” witnessed Friday ”isn’t just a flash in the pan, it’s the main course in a feast of market dynamics, seasoned with a dash of uncertainty and a pinch of speculation,” said Adam Koos, president at Libertas Wealth management Group.
At the heart of this ascent to a record settlement is a “complex recipe” made of U.S. economic data, the “fluctuating” fortunes of the dollar, the “ebb and flow” of bond yields and the Federal Reserve’s monetary maneuvers, Koos told MarketWatch. Each of these ingredients adds its own ”unique flavor to the pot.”
Gold for April delivery
GCJ24
climbed $41, or 2%, to settle at a record $2,095.70 an ounce on Comex on Friday. The day’s settlement topped the previous record high for a most-active contract from Dec. 27 at $2,093.10, according to Dow Jones Market Data.
Prices traded as high as $2,096.40 Friday, holding below the intraday record high of $2,152.30 from Dec. 4.
The yellow metal found support Friday following some “tamer” U.S. inflation data, and by “friendly outside markets” — a slightly weaker U.S. dollar index and higher crude-oil prices, said Jim Wyckoff, senior analyst at Kitco.com, in daily commentary.
On Thursday, U.S. government data showed that the PCE index rose 0.3% in January, matching the forecasts of economists polled by The Wall Street Journal, while the yearly rate of inflation fell to 2.4% from 2.6%.
Data on Friday, meanwhile, revealed that the Institute for Supply Management’s index of manufacturers declined to 47.8% in February from 49.1% in January. Economists polled by the Wall Street Journal had predicted an ISM reading of 49.5%.
Against that backdrop, the U.S. dollar has weakened, with the ICE U.S. Dollar index
DXY
down 0.3% at 103.88 in Friday dealings. Treasurys have climbed, prompting the yield on the 10-year Treasury
BX:TMUBMUSD10Y
to fall to 4.200% from 4.644% on Thursday. Yields move in the opposite direction to prices.
Gold has had a very interesting set up in recent weeks, with “strong Asian buying, primarily from China, adding to continued central bank purchases to keep the gold price firmly above $2,000,” Brien Lundin, editor at Gold Newsletter, told MarketWatch.
Still, Western buying has been “absent,” as indicated by falling gold holdings in the SPDR Gold Shares exchange-traded fund
GLD
and very low open interest on the Comex, he said. “Thus, there was little pressure on gold to rise or fall.”
But with this “underlying buying still present,” it didn’t take much new buying pressure to spark a move up for gold, and that came Friday with the latest ISM numbers showing U.S. manufacturing still in contraction, said Lundin.
This drove U.S. Treasury yields significantly lower, and that “lit the fuse on a gold market that was primed for a big rebound,” he said.
Most-active gold futures marked weekly climb of 2.3%.
Gold is responding now to “greater convictions of rate cuts” by the Fed midyear, said Peter Spina, president of GoldSeek.com.
“Former closing price highs are being taken out and you are likely seeing short-covering meeting speculative buying interest,” he said. “The convergence of pressures is now likely to keep the gold price rallying by hundreds of dollars higher.”
But we will “want to see confirmation of this price action with another close at record highs on Monday,” said Spina. “This is a big breakout move which has seen false starts before frustrating gold investors.”
Still, it’s “quite amazing to see how negative the sentiment has become in the sector despite near record price highs,” he said. That’s another indication that this market is “not overbought by any-means. It is just getting started.”