Gold Price RECAP: February 27 - March 3
Gold prices are closing out a surprisingly strong week; after briefly touching the lowest levels of the year so far, spot has rallied as much as $50/oz since the last day of February.
The gold chart has benefitted these last five trading days from being able to work up a little bit of the yellow metal's old magic as the grandfather of safe-haven plays. It's been a welcome piece of relief after the dominant theme of February's trading was strong pressure across all major US Dollar-priced assets being applied by the FOMC, as (reasonable) investors have been forced to turn away from any projections for 2023 that incorporate earlier-than-planned rate cuts from the Fed. The nadir of this downslope for gold prices, which we arrived at on Monday this week just ahead of the turn, saw spot bids as low as $1806/oz, representing the lowest pricing of 2023 so far.
To be sure, investors and traders in most of the recently struggling assets classes continued to feel the Fed squeeze all this week, too. Most notably, in a week that featured little in the way of key macroeconomic data or acutely impactful headlines in the news, the US' three major equity indexes have struggled again this week, previously looking likely to bank a fourth-consecutive week of declines in the S&P 500 before a mild turnaround that we're seeing for Thursday and Friday. (Even so, the intraday "gains" have failed to meaningfully surpass +1%.) Similarly, US bond prices continued to fall (pushing yields higher to match elevated interest rate expectations) to a level that saw the benchmark 10-year Note's yield rise above +4% for a time mid-week.
While we might expect the surge in Treasury yields-- and the overall market mood of February-- to have amplified the headwinds gold price has been fighting, the precious metal instead is turning in a week of healthy gains, having recovered to a level just beyond $1850/oz heading into the weekend. Absent any obvious, more acute drivers, the best bet is that gold's rally this week is a reaction to risk assets continuing to falter, driving investors to reach for safety in gold. Recently, the momentum of risk-aversion that would have benefited the yellow metal has been diverted to USD-- another stalwart safe haven and one that offers the dual benefits over gold of 1.) a yielding asset and 2.) one with propulsive support. This week's gold trading, though, suggests that the Dollar may be getting a little too expensive.
Also worth considering as a catalyst for the gold rally away from $1800 is timing. The first sharp climb higher in spot prices came on Tuesday, the final trading day of the month. The uptick in trading activity spurred by investors and traders trying to lock in gains (or mitigate losses) for the February book of business didn't appear to exacerbate a rough day in equity markets, but futures and options expiry seemed to pump added volatility into commodity markets to the benefit of gold's rally had spot already trading at $1830/oz by the time books opened for March.
Next week brings more high-profile inputs for the narrative of "Whither the Fed?" and its direct impact on risk appetite and the pricing path for gold and the US Dollar. It also brings more volatile pivot points for the gold chart. Early on, we'll see Fed Chair Jerome Powell's semi-annual testimony to congress; while there are unlikely to be any true "surprises" from Powell, that doesn't preclude a spike in trading activity. At the end of next week comes the monthly Jobs Report, which will be another critical check-in on both the impact of the Fed's heightening and tightening and the length of runway available to the central bank.
For now, traders, I hope you all have a fun and safe weekend ahead. We'll see you here next week for another recap of gold's trading week.