After hitting a record high of $2,970 per ounce during Monday’s trading session, the price of gold has started to pull back after rising eight consecutive weeks. Nymex April gold futures last traded at $2,850 an ounce on Friday, down more than 1.5% on the day and more than 3% from a week ago.
However, this pullback in gold prices was widely seen by analysts as a necessary break in the journey of further record highs.
Ole Hansen, head of commodities strategy at Saxo Bank, pointed out that gold may take this opportunity to test the strength of support at $2,800 per ounce, but this is a healthy correction, after which gold and silver will resume the upward momentum above $3,000 and $35.
Jess Colombo, an independent precious metals analyst and founder of the BubbleBubble Report, said it’s hard for investors to be completely bearish on gold while inflationary pressures continue to rise and the U.S. economy continues to weaken.
The Atlanta Fed released its latest gross domestic product forecast, which sees the U.S. economy shrinking by 1.5 per cent in the first quarter of this year. Compared to last week, when the Fed predicted 2.3 per cent economic growth in the first quarter, economic conditions have deteriorated sharply.
Data released by the U.S. Commerce Department on Friday showed that personal consumption expenditures (PCE) fell 0.2 per cent in January, well below market expectations for a 0.1 per cent increase. Adjusted for inflation, real consumer spending fell 0.5 per cent. The drop in consumer confidence and concerns about a pick-up in inflationary pressures were seen as favourable factors for the gold price.
Meanwhile, the U.S. bond market is also signalling a slowdown. 3-month U.S. Treasury yields outpaced 10-year yields this week, creating a yield inversion, a phenomenon that is often viewed as a reliable indicator that the economy may be slipping into a recession over the next 12 to 18 months.
Kelvin Wong, senior market analyst at OANDA, expects gold prices to remain on a solid long-term uptrend even if they pull back in the short term. Any further deterioration in economic data will provide safe-haven support for gold, he added.
Next week, the European Central Bank’s monetary policy decision on Thursday and Friday’s U.S. non-farm payrolls data for February are likely to be the main factors influencing gold prices.
