Gold's next move: Is $3,000 within reach?
NEW YORK (March 7) Although the gold market recovered from last week’s sharp selloff, analysts warn that the price action is looking a little directionless as it holds critical near-term support, at least for now.
Gold is preparing to end the week back above $2,900 an ounce with a 1.6% gain from last Friday. However, some analysts have said that a new catalyst is needed to push prices above $3,000 an ounce.
Global uncertainty created by President Donald Trump’s on-again, off-again tariffs and the treat of a global trade war is supporting the precious metal. However, some analysts have said that a lot of this chaos is now priced into the market.
At the same time, some analysts are waiting to see how new spending programs in Europe will impact gold. Earlier this week, the European Union announced a €1 trillion fund that nations can tap to increase their military spending. Germany is also looking to spend more money on its military and infrastructure.
“Gold will likely take another breather while we wait to see whether the U.S. will enter a period of stagflation,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank. “The risk of fiscal expansion in Europe may divert investment flows, but I see no reason why prices can’t move higher. A lot of supporting factors have been priced into gold, so now we have to wait for the economic impacts of current developments and actions.”
Renewed focus on Europe has driven new flows into the euro, which has pushed the U.S. dollar index to its lowest point since Trump won the Presidential election.
The U.S. dollar index, which is heavily weighted in favor of the euro, is down 2.5% this week. This is the greenback's largest weekly drop since early July 2022.
In the current environment, Nicky Shiels, Head of Research & Metals Strategy at MKS PAMP, said in a note that because of increased spending, gold against the euro is an attractive medium-to-long-term trade.
Not only has gold not been able to capitalize on significant U.S. dollar weakness, but U.S. economic data has provided little direction for the yellow metal.
Recession fears were eased slightly Friday following employment data showing a relatively resilient labor market. 151,000 jobs were created last month, which was only a slight miss as economists were expecting to see gains of around 160,000.
On Friday, Federal Reserve Chair Jerome Powell also reiterated the central bank’s neutral stance, saying it was in no hurry to cut interest rates as the labor market remains relatively healthy and inflation risks remain elevated.
However, some analysts have said that while recession risks may have eased, the threat has only been postponed.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said he sees a 20% to 25% chance of a recession this year because of sticky inflation and potential missteps from the Federal Reserve.
“Consumer sentiment is shaky, with a 10% drop in February’s University of Michigan Index, and looming uncertainties like Trump’s tariff policies could still tip the scales,” he said. “In this environment, gold has got legs to push past $3,000, riding a 28% surge in 2024 and strong central bank demand.”
Paul Ashworth, Chief North America Economist at Capital Economics, said in a report Thursday that while the U.S. economy is expected to contract in the first quarter of this year, he expects it will avoid a technical recession, which is traditionally defined as two quarters of economic contraction.
“For now, we don’t expect the U.S. economy to slide into recession,” he said in the note. “But stranger things have happened and, in addition to tariff-shy consumers, we still haven’t seen the impact of the Elon Musk-led DOGE efforts to dismantle large parts of the Federal government feed through into GDP.”
While gold faces some near-term challenges, many analysts remain bullish on gold, saying that they would see any dip in the price as a buying opportunity.
Lukman Otunuga, Manager of Market Analysis at FXTM, said that the employment data have once again shifted market expectations with the odds of a May rate cut falling back below 50%. He added that in the near term, this shift could weigh on gold.
“Although gold is still on track for a weekly gain, bulls need to keep prices above $2,856.40,” he said. “Looking at the week ahead, the incoming U.S. CPI data, Trump’s tariff drama, and a possible U.S. government shutdown could spell more volatility for gold. Regarding the technicals, prices are trading within a minor daily range with support at $2,890 and resistance at $2,930. A move above $2,930 could push prices toward $2,950 and the psychological $3,000. Below $2,890, gold may test $2,860 and $2,835.”
Economic data to watch next week:
Tuesday: US JOLTS job openings
Wednesday: US CPI, Bank of Canada monetary policy decision
Thursday: US PPI, U.S. weekly jobless claims
Friday: University of Michigan preliminary consumer sentiment survey
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