Market update: gold prices surge ahead of key US data, all-time high in sight

Gold prices surge ahead of key us economic data

Gold continues to build on gains over the last two trading sessions where the precious metal rose just under 3.5%, or by $70. Gold prices are not far from the all-time high reached in December of last year, and the recent uptick in volatility has some parts of the market expecting a retest of the significant marker.

The 30-day implied gold volatility (GVZ)

There hasn’t been a commensurate drop in US yields or indeed, the dollar, to warrant such a rise but there has been a lot of gold buying from central banks around the world; and this could finally be filtering into the paper price of gold. In addition, markets are growing increasingly confident that the Fed will cut rates in June, which may be helping to fuel this rally to some degree.

Lower interest rates help to make the non-interest-bearing metal more attractive and tends to result in higher gold prices. Of course, the safe haven attraction of gold should not be dismissed, as major conflicts in eastern Europe and the Middle East drag on. However, equity markets point to positive risk sentiment for the time being as major indices achieve all-time highs, effectively lessening the degree to which gold's safe haven appeal is assisting to prop up prices.

Gold’s upside breakout holds up despite overbought signals

Gold has broken out of the prior downtrend where we witnessed lower highs, and lower lows, although, most of the price action traded sideways throughout a large period during that time.

The $2050 proved to be a level of importance, representing a key psychological level which also coincided with trendline resistance. Supported by the 50-day simple moving average, XAU/USD has powered ahead and has not looked like stopping. The RSI has entered into deeply overbought territory, but gold prices have shown little intention of a pullback. At $2082 (prior all-time high) presents the next level of support with the new all-time high of $2146.80 in focus as resistance.

Gold daily chart

Key events/data in focus: US Services PMI, FED testimony, ECB, NFPS

This week, the most impactful events/data is likely to be non-farm payrolls and the ECB rate setting meeting, but there is a lot that traders need to be aware of. US services PMI data is due today and after some worrying sings in Friday’s manufacturing print, markets will be looking for confirmation if the services data reveals signs of a slowdown. Jerome Powell is due to testify in front of congress tomorrow as well as Thursday and the ECB is set to announce updates to its monetary policy. Friday sees non-farm payrolls enter the fray after two very encouraging prints suggesting the jobs market is thriving.

One side note is that today is also ‘Super Tuesday’ – the day that sees the majority of US states cast their votes in the presidential primaries.

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