Gold futures eyed $2,100 to close the trading week and kick off March. The yellow metal has been struggling to carve out a steady direction, but a weaker US dollar and slumping Treasury yields were enough to help gold prices ignite a fresh rally. Will gold stay firmly above $2,100 next week?
May gold futures spiked $33.30, or 1.62%, to $2,087.80 per ounce at 15:53 GMT on Friday on the COMEX division of the New York Mercantile Exchange. Gold prices notched a weekly gain of 1.3% and wiped out their year-to-date losses.
Silver, the sister commodity to gold, returned above $23 again. April silver futures surged $0.415, or 1.81%, to $23.30 an ounce. The white metal advanced 1.4% this week, paring its year-to-date decline to below 3%.
There were two main factors on Friday: the greenback and the bond market.
First, the US Dollar Index (DXY), a gauge of the buck against a basket of currencies, tumbled 0.2% to below 104.00. A weaker greenback is good for commodities priced in dollars because it makes it cheaper for foreign investors to purchase.
Second, the US Treasury market puked to start March, with the benchmark ten-year yield down 4.1 basis points to 4.211%. The two-year yield shed 9.2 basis points to 4.554%, while the 30-year bond dropped 2.2 basis points to 4.353%. Gold is sensitive to fluctuations in rates because it influences the opportuniy cost of holding non-yielding bullion.
Market analysts say that financial markets are confident that the Federal Reserve is ready to cut interest rates by the summer despite the futures market paring its expectations.
According to the CME FedWatch Tool, traders have priced in the first rate cut at the June Federal Open Market Committee (FOMC) policy meeting.
For the most part, the metals market will carve out a path based on economic data that will impact the US dollar and Treasury yields. So, if the numbers are abysmal and the market thinks the central bank will need to cut rates soon to avoid a downturn, gold will find additional support.
How was the data on Friday? Not good.
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) fell further into contraction territory and came in weaker than expected. The PMI showed employment down, new orders down, and prices flat.
Construction spending dropped 0.2% in January, down from an upwardly revised 1.1% in December.
The University of Michigan’s Consumer Sentiment Index eased in February, coming in at a lower-than-expected 76.9. Additionally, UMich’s one-year-ahead inflation expectations were flat at 2.9%.
In other metal commodities, April copper futures rose $0.01, or 0.3%, to $3.86 per pound. April platinum futures added $2.70, or 0.31%, to $886.70 an ounce. April palladium futures tacked on $14.20, or 1.5%, to $961.00 per ounce.