crazy! Speculative funds poured into the gold market in large numbers, and the price of gold simply could not stop reaching new highs!
This round of gold's rise is really unusual! Traders no longer expect the Federal Reserve to cut interest rates three times in 2024, and the surge in U.S. Treasury yields cannot stop the gold price from running wild...
On Tuesday, as demand from momentum funds offset the impact of higher U.S. Treasury yields, spot gold continued to rise, breaking through $2,276/ounce to a high of $2,276.38/ounce, setting a new record high and rising nearly $25 per day. Analysts generally believe that continued strength should enable it to further break through the $2,300 round mark.
The most active gold futures contract on COMEX traded 5,673 lots in one minute from 22:03 to 22:04 Beijing time on April 2, with a total value of US$1.301 billion.
The most active gold futures contract on COMEX traded 1,072 lots in one minute from 17:30 to 17:31 Beijing time on April 2, with a total contract value of US$245 million.
The most active gold futures contract on COMEX was 1,087 lots traded instantly within one minute from 16:06 to 16:07 Beijing time on April 2, with a total contract value of US$248 million.
Gold has hit new highs for three consecutive trading days. Ole Hansen of Saxo Bank said, "Speculators chasing gold's rising momentum are joining retail investors and central banks in the gold rush. They have expanded their already high long positions after gold prices exceeded $2,200. In addition, geopolitical tensions Political tensions have certainly added additional support."
Gold prices rose 9.3% in March, the biggest monthly gain since July 2020, driven by continued safe-haven demand and central bank buying. The People's Bank of China has increased its gold reserves for 16 consecutive months.
Independent analyst Ross Norman pointed out: "Gold has risen despite traditional resistance, such as a rising dollar, rising U.S. Treasury yields and the increasing possibility that U.S. interest rates will remain high for a long time. This shows how unusual this round of gains is."
Moreover, the gold market is entering a seasonally low demand season. With prices high, European physical investors are selling gold wholesale back to dealers, and demand in India has also fallen sharply. "It is hard to imagine a more ominous background than this," Norman added.
Traders no longer expect three Fed rate cuts in 2024
Last week, markets and the Federal Reserve briefly agreed on the pace of rate cuts for the year. But that didn’t last long, and Treasury investors are paying the price.
For much of this year, investors have been more dovish on interest rate cuts than Fed officials forecast, but now they are becoming more hawkish. They forecast the Fed will cut interest rates by about 65 basis points in 2024, compared with a median forecast of 75 basis points released after the Fed's March 19-20 meeting.
$BTC $ETH $SOL Markets were pricing in a smaller rate cut than the median Fed forecast and a reassessment of the prospect of a rate cut prompted investors to push U.S. Treasury yields higher. On Tuesday, U.S. Treasury yields between 5 and 30 years climbed to their highest levels this year. The 30-year Treasury bond yield exceeded 4.5%, and the benchmark 10-year Treasury bond yield hit 4.4% for the first time since late November last year, rising nearly 20 basis points in the past two days.
"I thought it would be difficult for the market to believe in the Fed's hawkish stance, but clearly, in the face of some evidence, the market is willing to do so," said Benoit Gerard, rates strategist at Natixis in Paris.
Traders have reacted to a slew of economic data over the past few days that pointed to strength in the U.S. economy, potentially reducing the need for rate cuts.
After last week's release of the personal consumption expenditures price index, Federal Reserve Chairman Jerome Powell said the data was "generally in line with our expectations" and reiterated that the Fed was in no rush to cut interest rates. At that time, income and expenditure data for February also showed that consumption remained strong. Then, on Monday, a gauge of U.S. manufacturing activity expanded for the first time since 2022, beating all economists' expectations.
Data released on Tuesday showed that U.S. factory orders increased by 1.4% on a monthly basis in February, a new high since November 2023. The increase exceeded expectations of 1%. The previous value was revised down to -3.8% from -3.60%. The number of JOLTs job vacancies in the United States increased by 8.756 million in February, the smallest increase since October 2023, higher than the expected 8.74 million, but the previous value was revised down from 8.863 million to 874.8.
No Fed rate setters have spoken publicly about monetary policy since Monday’s data was released, though several are scheduled to speak later on Tuesday, including New York Fed President John Williams, Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly.
This isn't the first time in recent weeks that traders have questioned the Fed's outlook. In the days before the March interest rate decision was announced, they had also bet that the Fed would cut interest rates by less than 75 basis points, but this time the pricing was more "hawkish."
The shift also casts doubt on bets on a first rate cut in June, after the odds of a quarter-point cut fell below 50% on Monday.
"While a rate cut in June is not out of the question, market confidence in the Fed's first rate cut is waning," ING strategist Benjamin Schroeder wrote in a note. "In the coming weeks, we can expect some Fed officials to still be vocal about a June rate cut, but the data will ultimately be the deciding factor."
