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Market update: gold surges amid US economic woes. What's next for the precious metal?

Weekend data misses sent gold soaring to December highs. With key events ahead, including Powell's testimony, investors track the precious metal's move in the face of economic uncertainty.

Source: Bloomberg

Disappointing US economic data last Friday catalysed a surge in gold prices, propelling them to heights not witnessed since the previous December. The US ISM manufacturing PMI notably underperformed against market expectations, continuing its contraction with a significant drop in new orders from 52.5 in January to 49.2 in February. Similarly, the Michigan Consumer Sentiment index fell short of both its previous figure and market predictions, marking another notable miss.

Source: DailyFX

These two releases pushed US rate cut expectations marginally higher and sent short-dated US Treasury yields sliding. Market forecast pushed total rate cut expectations for 2024 to 88 basis points, from 83 pre-data, while two-year US Treasury yields fell by around 10 basis points to 4.52%.

US treasury 2-year yield

Source: TradingView

Key economic events and gold's rally: What to watch this week

Ahead of this week, there are a few potentially market-moving data releases and events that need to be monitored. Fed chair Jerome Powell’s two-day testimony starts on Wednesday, the same day as noteworthy US ADP and Jolts data hits the screen. To end the week, the monthly US Jobs Report (NFP) is released at 13:30 UK and will guide the dollar going into the weekend.

This move lower of US bond yields gave gold a push higher, helping it push through prior levels of resistance and back to highs last seen in December last year. The first of these resistance levels, $2,070/0z. will now start to act as support ahead of $2,043/oz. There is little in the way of resistance between the current spot price and the December 4th spike high at $2,146.8/oz. apart from one technical indicator that is flashing a heavily overbought signal.

Gold's overbought signal and trader sentiment

The CCI indicator, at the bottom of the chart, is now showing an extreme reading over 250, and this is likely to temper any short-term move higher. In the medium- to longer-term, when this reading begins to normalise, then gold is likely to retest the record high seen at the end of last year.

Retail trader data show 44.64% of traders are net-long with the ratio of traders short to long at 1.24 to 1.The number of traders net-long is 5.91% higher than yesterday, and 19.58% lower than last week, while the number of traders net-short is 8.05%, higher than yesterday, and 44.53% higher than last week.
Gold daily price chart

Source: TradingView

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The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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