Gold futures rallied on Tuesday, erasing stronger US dollar and Treasury yields, pushing gains for the third straight session to close at a three-week high. The yellow metal continues its struggle around the level it has risen to today.
According to analysts at Zaner, this development could be a new ‘supporting story’ for gold
“The only really accepted trade right now seems to be to bet on faster rate hikes by the Federal Reserve,” said Adrian Ash, director of research at BullionVault, saying he expects higher interest rates to “act like kryptonite and drain its strength.” However, Adrian Ash draws attention to the following:
The Fed is clearly so behind the inflation curve that the solid bid for gold says it’s either too late to catch up or is about to make a historic mistake by walking as the economy cools.
Precious metal prices soared above $1,825 after data released on Tuesday showed the U.S. trade deficit rose 27% to $859 billion in 2021. The deficit rose 1.8% in December to reach $80.7 billion. This data marks the second largest monthly increase ever.
Analysts at Zaner noted in market commentary on Tuesday that a new ‘supporting story’ for gold could surface on the US trade front, with reports that US officials voiced concerns that China was not delivering on its trade promises. “Focusing on trade with China could be a more obvious escape from the quality issue like the Ukraine conflict,” analysts said, pointing to an escalation in safe-haven demand for gold.
Sevens Report Research offers two different scenarios based on US CPI data
Higher interest rates and a stronger dollar could reduce interest in non-yielding dollar-pegged bullion. Sevens Report Research analysts commented in Tuesday’s news release:
Still high inflation expectations have prompted traders to buy gold ahead of the key CPI report due Thursday, which has the potential to be a major catalyst for the gold market this week.
Analysts say if we see a warm report and the possibility of a 50bps increase next month increase, then expect hawkish money flows and rising real interest rates to hit the bottom.
If the report is not as hot as feared, then a continued rally into the mid-1800s will become increasingly likely as the Fed will be seen as ‘behind the curve’ by the market.
“Gold is now targeting 2022 high of $1,853”
Open interest on gold futures markets rose for the second consecutive session on Tuesday, with currently around 3.7k contracts, according to advanced figures from CME Group. Along the same lines, volume resumed upwards, with around 7.3K contracts up.
According to market analyst Pablo Piovano, gold prices continued their upward momentum with increased open interest and volume on Tuesday, which supports the continuation of the rise at least in the near term. However, the analyst states that the next target for the precious metal is at $1,853 YTD high.