The stars seem aligned for a new record high in gold. The only question seems to be when.
Outlook
If market fervor is right, a gold record high could happen as soon as Monday — provided U.S. jobs data for March, due on Friday, is supportive enough.
By supportive, it means the non-farm payrolls report has to show meaningfully lower growth for last month — in the low 200,000s, or even below 200,000 — versus the forecast 239,000 and February’s comparison of 311,000.
Such a number will sound alarm bells in economists’ heads — dramatically increasing their bets for a recession — and send a signal to the Federal Reserve that may be the rate hike it did two weeks ago should be its last for now.
A Fed retreat at this point could be fatal to the dollar, sending the greenback beneath recent lows and possibly dragging U.S. bond yields down too.
Combining all these could result in a stampede towards gold as havens shine in an investor flight to safety.
These are the prerequisites for a gold record high, for now at least, and the aforementioned trigger would be a supportive NFP report on Friday.
The timing, however, remains Monday at the earliest as COMEX gold futures would be closed for the Good Friday holiday when the NFP report lands.
Context
Gold’s upward momentum has been unrelenting over the past six weeks, climbing from low levels of $1,800 an ounce and repeatedly breaching $2,000. Futures on COMEX, particularly, have settled above $2,000 for three straight sessions through Wednesday.
If there’s a moment for a new record, this one seems to be it. The writing is also on the wall for a meaningful slowdown in U.S. jobs growth.
Private sector hiring in March was less than 44% of the previous month, emitting potential recession signals even as it indicated relief for inflation fighters at the Federal Reserve, who said employment and wage growth have to cool to curb the worst price pressures in four decades.
Company hirings rose by just 145,000 last month versus the February growth of 261,000 in February, private payrolls processor ADP said, releasing a number even below the 210,000 growth forecast on the average by economists polled by U.S. media.
Nela Richardson, the chief economist at the ADP, said in a statement,
“Our March payroll data is one of several signals that the economy is slowing. Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”
The private hirings data came on the heels of another report on U.S. job openings for February, which showed the smallest growth in almost two years. Job openings slipped to 9.9 million, growing at their slowest pace since May 2021, the Labor Department said in that report.
The March edition of the NFP is expected to show a slowdown of almost 280,000 jobs from January’s growth of 517,000 raising new worries about inflation in the United States.
As measured by the CPI, or Consumer Price Index, inflation hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 6% per annum in February, for its slowest expansion since October 2021. Even so, that was over three times the Fed’s target of 2% per annum.
The Fed has increased interest rates by 475 basis points over the past 13 months, taking them to a peak of 5% from just 0.25% after the COVID-19 outbreak in March 2020.
The central bank’s main guide for rates has been monthly non-farm payrolls. The labor market had been the juggernaut of U.S. economic recovery from COVID-19, with hundreds of thousands of jobs being added without fail since June 2020 to make up for the initial loss of 20 million jobs to the pandemic.
The Fed has identified robust job and wage growth as two of the key drivers of inflation. Average monthly wages have grown without a stop since May 2021.
Required Market Action
A further drop in the Dollar Index, towards the 100-Week Simple Moving Average of 100.20, would be conducive for gold's tryst with a new peak, says Sunil Kumar Dixit, chief technical strategist at SKCharting.com. He said:
“Consistent Dollar Index weakness below the 5-Day Exponential Moving Average, or EMA, dynamically positioned at 101.70 remains intact. If this is cleared, it can provide relief to the dollar, for it to recover towards the Daily Middle Bollinger band of 102.60.”
“A break below the recent low of 101.09 may prompt a quick drop to 100.68 and 100.20. These two levels would greatly aid gold’s quest for a record high.”
On the bond yields front, Dixit said after seven consecutive days of declines, the U.S. 10-year Treasury note could see a technical rebound.
“The 10-Year may see a short jump to the 5-Day EMA that’s dynamically positioned at 3.36, and if the NFP report supports the dollar, yields may spike towards the 200-Day SMA, of Simple Moving Average of 3.50.”
“We see a plunge toward 3.15 and 3.05 as ideal conditions for gold's uptrend to retest $2,070, and break higher towards $2,090-$2,140.”
As for the record high of gold itself, Dixit said prices within the $2,090-$2,140 band could rewrite the existing all-time peak of $2,072.90 in the spot price of bullion.
The record high for COMEX gold futures is, meanwhile, $2,078.80. Dixit added, referring to spot gold:
“Consistent support from the 5-Week Exponential Moving Average of $1965 and the horizontal support zone of $1990-$1980 has provided extra cushion for the big jump higher.”
“The move up could be a little uneven though, as a challenge is likely at $2,055, before a retest of $2,070. The major breakout target may be $2,196.”
But what if the NFP report disappoints the longs in gold? What could happen then?
“If NFP actual numbers come higher than the consensus of 240k, we can witness the Dollar Index gaining strength towards 102.50.
“This will result in gold undergoing a short term correction, towards the support areas of $1,970-$1,960, before any new attempt to rise.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.