Gold rally could extend beyond recent highs

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Gold has gained close to 19% since a recent low in October and almost 7% over the past month alone, with strategists at UBS saying there is potential for a pullback in the yellow metal in the near term.

“Part of the recent rally may reflect technical factors, as prices crossed key resistance levels. But while we see potential for a pullback in Gold in the near term, this does not mean the rally can’t go further over the coming year,” said the UBS analysts.

“We see Gold being supported by several trends: the Fed appears on track to cut rates, central banks’ and investor buying of gold should be supportive, and heightened geopolitical risk should also support Gold.”

XAUUSD extended the rally above $2,180 after reaching fresh all-time highs of nearly $2,200 in Asian trading on Monday.

The prospect that the Fed will cut the interest rate this year lends some support to the yellow metal. Additionally, the ongoing geopolitical tensions also boost safe-haven demand.

During the semiannual testimony on Capitol Hill last week, Fed Chair Jerome Powell said that the US economy is healthy and policymakers are not far from having enough confidence in inflation’s downward trajectory to begin cutting rates.

Futures markets have priced in about 70% odds that the Fed will start cutting interest rates by mid-June and expect a full percentage point of rate cuts by the end of the year, according to the CME FedWatch Tools.

NFP lifted gold

NFP data released from the U.S. Labor Department on Friday revealed that the US economy added 275,000 jobs in February, stronger than the estimation of 200,000.

The Unemployment Rate rose to 3.9% in February from 3.7% in January, the highest level in two years, while the mixed report triggered the possibility that the Fed will cut interest rates by June.

China’s inflation report on Saturday suggested that consumption has returned to normal levels. The signal of rising domestic demand in China’s economy in February lifted the price of gold as China is the world’s top consumer of the precious metal.

According to data from the National Bureau of Statistics (NBS) on Saturday, the Chinese Consumer Price Index (CPI) jumped by 0.7% YoY in February from a 0.8% decline in January, stronger than the expectation of a 0.3% rise.

Meanwhile, the nation’s Producer Price Index (PPI) declined 2.7% YoY in February from a 2.5% decline in January, worse than the estimation and the previous reading of a 2.5% decline.

Gold traders will focus on the US CPI and Retail Sales for February for fresh impetus, due later this week. The CPI inflation figure is expected to show an increase of 0.4% MoM and 3.1 YoY in February, while the Retail Sales is forecast to climb 0.7% MoM in the same period.

(Source: OANDA)