Gold Prices Move Towards All-Time Highs as Investors Weigh US Economic Data

Gold prices are trading higher today even as broader US markets are looking weak. The precious metal’s appeal has risen amid growing concerns over the health of the US economy.

US private payrolls increased by 145,000 in March which was way below the 210,000 that analysts were expecting. Also, total US job openings dipped below 10 million for the first time in two years.

Notably, the US job market has so far been quite strong and added over 0.8 million jobs in the first two months of 2022. Even Fed chair Jerome Powell has pointed out that a strong US job market coupled with rising wages makes its job of targeting inflation difficult.

Meanwhile, recent data points show that the US economy is losing sheen.

Gold incidentally tends to do well during periods of economic turmoil and hit its all-time high of $2,069.40 in 2020 – as the COVID-19 pandemic and the related uncertainty boosted the demand for the safe haven asset.

However, in inflation-adjusted terms, prices peaked in 1980.

Gold prices are now within a striking distance of their all-time highs and have topped $2,000 per ounce. Along with fellow precious metal silver gold prices have now risen to the highest level in a year.

Gold Prices Stare at All-Time Highs Amid Soft Economic Data

Analysts are also constructive on gold amid the flurry of soft economic data – coupled with the weakness in the US dollar which has fallen to a two-month low.

David Meger, director of metals trading at High Ridge Futures said, “We’re in this very positive backdrop for gold in which we have the slowing of economic data along with inflationary pressures remaining elevated.”

The stars were well aligned for gold in 2022 as well. US inflation surpassed 9% in June as prices were rising at the fastest pace in decades.

Fed Has Been on a Rate Hiking Spree

Gold prices tend to do well during high inflation as it is seen as an inflation hedge. While high inflation is generally negative for stocks, gold and some other asset classes can outperform.

However, the Fed’s rate hikes worked to the nemesis of gold. It nonetheless managed to close 2022 flat, thanks to the rally in December.

Currently, the Fed fund rate is 4.75-5.0%. The March dot plot calls for another 25-basis point rate hike in 2023.

Fed’s Rate Cuts Could Help Boost Gold Prices

Powell has ruled out rate cuts in 2023 even as markets expect the Fed to start cutting rates in the second half of the year.

Being a non-interest-bearing asset, gold tends to underperform during periods of rising interest rates – as we were in 2022.

However, the Fed has slowed its pace of rate hikes and has raised rates by 25 basis points in the previous two meetings.

If Fed resorts to rate cuts as the markets seem to believe, investors might find gold even more attractive.

• Read our guide on buying commodities like gold

Alexander Zumpfe, a precious metals dealer at Heraeus told Reuters, “The $2,050-mark could act as an important resistance level, and if breached, prices could quickly soar towards its all-time high.”

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