Astounding Gold Records Confuse Investors

Gold prices are rising by 3.4% to $2154 per troy ounce. Gains were even bigger on Thursday morning, but the bullion has retreated a little. There is no particular reason for gold to rally by 5.5% since last Friday. The last time a similar upside movement was recorded was in October 2023 when Hamas attacked Israel. Prices surged by 6.0% within 6 days then.

Although there are some reasons why gold prices are rising. Foremost, China is increasing gold imports from Switzerland. The country has bought 3 times more gold in January, reaching 110 tonnes. This is the highest in the last 3.5 years. Some attribute it to the weaker Manufacturing PMI in February in the United States. It declined to 47.8 points, missing expectations of a rise to 49.5 points. Some believe that chances for a prompt interest rate cut by the Federal Reserve (Fed) are rising. Indeed, bets for interest rate cuts in May rose to 21.7% from 18.1%, and for June, they increased to 58.2% from 52.7% this week. The last two explanations are seen as distinctly shaky. Investors knew that ISM Manufacturing PMI has been in the contraction zone below 50.0 points since October 2022, and it was forecasted to stay below this watershed. Fed’s Chair Jerome Powell said that policymakers are still attentive to inflation risk, and he was not ready to say when they are going to cut interest rates, limiting himself by saying that he expects the rates to be cut by the end of this year.

In China, the National People’s Congress approved a resolution dropping the word “peace” combined with the phrase “resolutely opposing Taiwan independence”. This stronger language regarding the reunification process of mainland China and the self-ruled island Taiwan may be a signal of a future escalation. Some analysts say military actions are not possible before autumn.

It seems that something is going on in the markets, and it’s not a preparation for another geopolitical conflict. Gold prices are at record highs, Bitcoin has recently posted a new all-time high, and the U.S. stock market is at record values too. Generally, prices are being dragged in a different direction before the major wave in the opposite side. In terms of gold prices, this idea is supported by the capital outflows from the SPDR Gold Trust (GLD) during the last ten weeks. The fund has reported $151.9 million of outflows during the last week. So, investors abandon gold when prices are surging. Gold prices are hovering above the resistance at $2100-2120 per ounce. From a technical standpoint, they may climb further to $2200 per ounce. But, they have just a week to do so because in the middle of March, a technical period of weakness for gold will start. It will last until mid-April. It is hard to imagine that prices will continue up without the support of capital inflows.