Gold has stabilized since our last update last month which coincided with the yellow metal falling back below $2000 on a combination of a stronger dollar, rising US Treasury yields and the market pricing in a reduced pace of US rate cuts, currently trading within a 50-dollar wide range around $1960. The investment metal market has, as mentioned, been challenged by a further delay to the timing of peak US rate after recent economic US data continued to show strength while the drop in core inflation has slowed.
While not ruling out additional short-term weakness the market is showing resilience, with silver and platinum currently outperforming gold while the miners are still struggling to find a bid amid the current stock market rally, being increasingly concentrated and centered around a few AI (Artiﬁcial Intelligence) and mega cap stocks, a situation we view with a great deal of caution as highlighted in this update from Peter Garnry, our equity strategist, titled “Equities signal calm waters, or do they?”
For now, the direction of gold continues to be dictated by developments in the short-term interest rate markets where traders place bets on the direction of Fed Funds rates and following yesterday’s surprise decision by the Bank of Canada to restart its rate-hiking campaign bullion traded lower before once again finding a bid ahead of an area of support below $1935. Sentiment suffered a small blow as the Canadian rate hike raised expectations the FOMC may not be done yet.
The market is currently experiencing another rate hike before July while the latter rate cut bets have been moderated with 5% being the end of year target, almost one percent higher than where it was projected back in April before the recent correction. Looking further into the future, by this time next year Fed funds rates are priced near 4.2%, up from around 3% last month.