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

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.

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

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

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