A smart person never says they know everything. Smart people question everything. That’s how gold is behaving. It doesn’t believe in the Fed’s rate rise to 6% or a dovish turn. Consequently, it’s consolidating. How long will it last? Let’s discuss it and make a trading plan.
Fundamental forecast for gold for today
Gold is searching for its place in the sun and believes the US employment report for February will help it. Meanwhile, the US stock market continues to think that inflation will slow down by itself and that the Fed will manage to ensure a soft landing. The bond market, on the contrary, is sure a recession can’t be avoided. Thus, gold believes the truth is somewhere in between. The asset is choosing between a higher federal funds rate and a dovish turn somewhen between September 2023 and March 2024 and keeps staying above 1,800.
Gold seems stuck between the past and the future. In January, the predominating idea was that US inflation would slow down as fast as in the second half of 2022. So, the funds rate was supposed to reach only 4.9% and start dropping by the end of 2023. The US economic state would continue worsening, even if a soft landing could still be possible. The return of the global supply pressure index to its pre-pandemic levels supported that scenario. Supply outages were some of the key drivers in the price growth. Having handled them would allow inflation to slow down by itself.
Global supply pressure index
However, US stats in February were so optimistic that the Fed had to mention a rise in borrowing costs and a higher monetary restriction pace. The derivatives raised the ceiling for the federal funds rate to 5.5%, and the market narrative shifted. Investors now believe the Fed will resume its aggressive monetary restriction and provoke a recession. The bond market believes it more than anyone else as 2-year bond rates soared to the highest since 2007, and the curve yield collapsed to the deepest trough since 1981.
Evolution of US bond yields
Stock markets don’t even know how to react to the US strong statistics since the beginning of the year. Only gold behaves smartly. It admits it knows nothing. That could explain why it fluctuates from $1,805 to $1,850 and backward. Still, some believe the latest surge in XAUUSD prices was due to Singapore’s building up gold holdings from 4.9 million to 6.4 million ounces in January (a 30% increase, roughly). However, I think gold is reacting to the macroeconomic environment more than to the state of the physical asset market.
Trading plan for gold for today
How will the US employment report for February affect gold? If more than 300,000 jobs are added, the precious metal will drop to $1,800 an ounce amid comments about a strong economy, another inflation boost, and an aggressive Fed. If non-farm jobs grow by less than 200,000, the idea of a dovish reversal will revive, throwing the XAUUSD above 1,900. In all other cases, gold will continue consolidating between these levels.
Price chart of XAUUSD in real time mode
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