Gold breaks $2,000 barrier for the third time in history
April 5, 2023 1:23 pm
For the third time in its history, both in August 2000 and March 2020, gold broke above the psychologically important mark of $2,000 per ounce, and this time the precious metal intends to settle there for a long time. The huge demand for the physical asset, coupled with a favorable macroeconomic environment and unextended speculative positioning, make it safe to say that the potential of the XAUUSD rally is far from being tapped.
The slowdown of inflation in the United States and the growing risks of a recession in its economy—what could be better for gold fans? They are attacking in all directions—through the growth of investment demand and in the market of fixed-term contracts. After record purchases of 1,136 tons in 2022, central banks are not slowing down. In January, they purchased 74 tons, and in February, 52 tons. The two-month start period is the best since 2010. ETF stocks rose in March for the first time in 10 months, and coin sales by the American Court in the first month of spring amounted to 187,500 ounces. We are talking about the best result in 10 years.
Over the past two weeks, speculators have increased net longs for the precious metal at the fastest pace since June 2019. Their total value, for the first time in 7 weeks, exceeded 100k lots. It is far from its peak of 292k lots, suggesting significant XAUUSD rally potential.
The growth in futures is due to a favorable macro environment. After job openings fell to their lowest level in two years, it was clear that the labor market was cooling off. Cracks in the U.S. economy due to the Fed’s aggressive monetary policy are getting larger and larger. And they could drive the U.S. into recession. Concerns about the downturn are causing investors to flee into Treasury bonds and reduce their yields, creating a tailwind for gold. So, too, does a weak dollar.
Dynamics of gold and U.S. dollar
The positions of the U.S. currency are bursting at the seams against the backdrop of disappointing macro statistics and the associated decrease in expectations for the continuation of the Fed’s monetary restriction cycle. The futures market has dropped the chances of a 25 bps increase in the federal funds rate at the May FOMC meeting to less than 50%. Derivatives see a borrowing cost ceiling of 5.1%, which suggests the Fed most likely stopped tightening monetary policy in March.
On the contrary, Reuters experts believe that the ECB will raise the deposit rate three more times—in May, June, and July. As a result, it will rise to 3.75%, the yield differential between U.S. and German bonds will narrow, and EURUSD will continue to rally. The weakening of the dollar is great news for gold denominated in this currency when trading.
Technically, there is a recovery of the “bullish” trend on the daily chart of the precious metal. The child and parent patterns AB=CD indicate the targets of the upward movement. They are located near $2,060 and $2,105 per ounce. The recommendation is to keep and periodically increase the longs formed from the $1,925 level.
The material has been provided by InstaForex Company – www.instaforex.com
For the third time in its history, both in August 2000 and March 2020, gold broke above the psychologically important mark of $2,000 per ounce, and this time the precious metal intends to settle there for a long time. The huge demand for the physical asset, coupled with a favorable macroeconomic environment and unextended speculative positioning, make it safe to say that the potential of the XAUUSD rally is far from being tapped.
The slowdown of inflation in the United States and the growing risks of a recession in its economy—what could be better for gold fans? They are attacking in all directions—through the growth of investment demand and in the market of fixed-term contracts. After record purchases of 1,136 tons in 2022, central banks are not slowing down. In January, they purchased 74 tons, and in February, 52 tons. The two-month start period is the best since 2010. ETF stocks rose in March for the first time in 10 months, and coin sales by the American Court in the first month of spring amounted to 187,500 ounces. We are talking about the best result in 10 years.
Over the past two weeks, speculators have increased net longs for the precious metal at the fastest pace since June 2019. Their total value, for the first time in 7 weeks, exceeded 100k lots. It is far from its peak of 292k lots, suggesting significant XAUUSD rally potential.
The growth in futures is due to a favorable macro environment. After job openings fell to their lowest level in two years, it was clear that the labor market was cooling off. Cracks in the U.S. economy due to the Fed’s aggressive monetary policy are getting larger and larger. And they could drive the U.S. into recession. Concerns about the downturn are causing investors to flee into Treasury bonds and reduce their yields, creating a tailwind for gold. So, too, does a weak dollar.
Dynamics of gold and U.S. dollar
The positions of the U.S. currency are bursting at the seams against the backdrop of disappointing macro statistics and the associated decrease in expectations for the continuation of the Fed’s monetary restriction cycle. The futures market has dropped the chances of a 25 bps increase in the federal funds rate at the May FOMC meeting to less than 50%. Derivatives see a borrowing cost ceiling of 5.1%, which suggests the Fed most likely stopped tightening monetary policy in March.
On the contrary, Reuters experts believe that the ECB will raise the deposit rate three more times—in May, June, and July. As a result, it will rise to 3.75%, the yield differential between U.S. and German bonds will narrow, and EURUSD will continue to rally. The weakening of the dollar is great news for gold denominated in this currency when trading.
Technically, there is a recovery of the “bullish” trend on the daily chart of the precious metal. The child and parent patterns AB=CD indicate the targets of the upward movement. They are located near $2,060 and $2,105 per ounce. The recommendation is to keep and periodically increase the longs formed from the $1,925 level.
The material has been provided by InstaForex Company – www.instaforex.com
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