Golden highs

Gold continues on its bullish run, with a troy ounce again climbing above $2,000, having landed at $2,022 in early April (see Fig. 1), up 10.2% from the level at the beginning of the year and just a smidgen below the record high seen in August 2020.

Along with the malaise in the banking sector, the flurry on the gold market this month has been triggered by a number of factors. First was the release of the final US GDP reading for the fourth quarter of 2022, with the US Department of Commerce trimming its earlier estimate of annualized growth from the preceding quarter – from 2.7% to 2.6% (see Fig. 2)[1], while consumer spending posted just a 1% rise, rather than the earlier reported 1.4%. Second was the news of voluntary production cuts by OPEC+ countries in addition to those previously agreed, which we discussed in our publication last week.[2] And third is the ongoing slowdown on the US labor market, with nonfarm payrolls in March increasing 236,000, compared with 326,000 in February[3] and 472,000 in January[4], while earlier reports indicated that job openings in February had fallen to their lowest level since May 2021.[5]

Wider economic troubles, compounded by mounting inflation pressures, bolster the case for gold, as investors are piling into it as a safe asset, keeping up with last year’s bullish trend amid growing demand from both the public and central banks. Globally, central banks purchased a record 1,136 tonnes of gold in 2022 (see Fig. 3) and are now maintaining the momentum. According to the World Gold Council, they bought another 52 tonnes in February,[6] the eleventh consecutive month of net purchases.

Future gold prices will depend on whether the Fed will persist with another rate hike – something to be decided at its upcoming meeting in early May. At present, a growing number of market players believe that the US regulator will continue with monetary tightening. CME’s FedWatch Tool suggests that around 70% of traders have placed their bets on a 25-basis-point rate hike.[7]