In the last 24 hours, gold has chalked up a new record high price courtesy of a combination of expected interest rate cuts, geopolitical risks, and uncertainty over how legal or otherwise US tariffs are. With the Fed expected to cut rates later this month (unless there are any significant upside shocks in CPI or jobs data), and with the Russia-Ukraine hostilities being ramped up rather than reaching a peace deal yet, gold has been finding multiple avenues of support. Add into the mix worries over what the fiscal implications may be should the US have to perform an about-face and reimburse tariff charges, and gold’s reputation as a reliable store of value has come to the fore again.
As for the Court of Appeals which ruled that Trump’s tariffs were illegal (and that the power to impose levies should be carried out by Congress), this will be challenged by Trump in the Supreme Court. We don’t know which way this ruling will eventually go, but the prospect that the US may have to give back much of its tariff revenue has resulted in treasury yields and safe haven demand both being on the rise.
Spot gold has registered new highs north of the $3530 level. The silver price has also been on the march higher this week on a robust industrial demand outlook and potential supply shortfalls. Gold could be eyeing off a run towards $3600 perhaps sooner rather than later should the current market dynamics remain favourable for the precious metal. The next key level to watch on the topside is resistance around the $3550 level, with support at $3494. Short-term obstacles for gold could include the possibility of profit taking setting in at these record highs. And should the USD and treasury yields keep heading higher this could apply the brakes to the gold price (given that these two assets tend to historically have a negative correlation with gold).
The oil price has made a push higher in response to Russia-Ukraine strikes against each other. With the rising risk of Russian oil infrastructure being damaged further, added risk premium has pushed US Crude back above the $65 level this week. OPEC+ are due to meet this week, and if the cartel holds production at current levels (rather than increasing it further as they have done in prior months), crude could nudge a bit higher. However, if the USD remains elevated, this makes oil more expensive for many buyers and could act as a headwind. Technical levels to watch include resistance at $66.10, with support at $64.56.
Looking ahead, Friday’s NFP (Non-farm Payrolls) report is looming large, given its potential to sway the degree of dovishness exhibited by the Fed between now and year-end. The last three months of US jobs data has been particularly poor (as shown by downward revisions to prior data at last month’s release). We expect that the NFP result could land around the 75k mark, which would be weak enough to keep the Fed on track to ease rates this month and then again by year end. However, if the jobs report shows a bounce back in the labour market with a print of over 100k, this would raise questions about just how many times the Fed may be able to cut rates this year.
