27th March 2024: Gold resumes its gains today by 0.55% and regains the level of $2176 per ounce after the decline it recorded during the previous two sessions when it touched its highest historical levels at $2222 per ounce.

Gold’s movements today come at the beginning of a week rich in key data, especially from the US economy, which may help markets confirm expectations about the potential path of inflation and interest rates for the rest of this year.

Next Friday, markets await the Core Personal Consumer Expenditure (core PCE) Price Index for February, with inflation expected to hold steady at 2.8% on an annual basis and slow slightly to 0.3% on a monthly basis from 0.4%.

While the return of the Federal Reserve’s preferred gauge to track inflation to accelerated growth again may be the largest contributor to putting pressure on gold to abandon its record levels if Treasury bond yields continue to recover but that takes a huge surprise from the core PCE reading.

Market expects a possible three interest rate cuts, which the Federal Reserve will begin next June. However, it seems that the markets are very committed to the hypothesis that the path of cutting interest rates will actually begin in June, and thus the question is about the number of subsequent cuts.

Tomorrow, we are expected to witness a slight recovery in the CB Consumer Confidence Index in March after declining for the first time in three months in February.

Also, this week, from the housing market, we await the initial unemployment benefits this week and confirmation of the fourth quarter reading of GDP and the University of Michigan Consumer Confidence Index.

In the longer term, the continued holdings of central banks, which recorded their highest historical levels over the past two years, support gold’s gains this year as well, while strengthening bullion reserves in an effort to reduce dependence on the US dollar and confront the surrounding risks.

In contrast to the record high central bank purchases, we find a different dynamics in the US markets, where physical gold ETFs continue to bleed and record outflows, which have also continued since the Fed began raising interest rates in the first quarter of the year 2022.

While this rapid increase in interest rates led to a widespread decline in bond prices, this is what made bond ETFs very attractive, and this is what led to them recording huge inflows during the year 2023 and until now, in order to benefit from the high yields – the real one after adjusting for inflation – which gold does not provide either.

Geopolitical risks provide an additional premium to the price of gold this year as well, with the continued escalation of military actions in both the Middle East and Ukraine in a continuing and worrying manner. This is despite the absence of any signs of an immediate settlement for any of the raging conflicts.

Markets also fear the worst, which could lead to the ongoing conflicts on the two fronts getting out of control, with the accelerating series of events over the past two weeks.