Gold edged further ahead on Tuesday, with the yellow metal adding $2 to $2061 per ounce, despite firming of US rates. While fundamental drivers still appear supportive, technical confirmation from fund flows remains mixed.
US rate cut euphoria continued to moderate on Tuesday, capping gold’s gains. Both the 2-year and 10-year US Treasury yields now trade some 0.1% (10 bps) higher than they ended 2023, while US interest rate futures have pared back their expectations of a March rate cut from c. 90% to c. 80%.
In the absence of notable data, these moves appear to be driven by market repositioning as markets reopen from the holiday season. However, we note that despite the Fed’s capitulation on forward guidance on 13 December, there remains a large gap between the market’s expectations of aggressive rate cuts and the Fed’s most recent ‘dot plot’ projection. The minutes of the FOMC’s December meeting, expected later today, may shed further light on the Fed’s current thinking.
Despite these moderately supportive fundamentals, positive flow momentum into physical gold Exchange Traded Commodities (ETCs) or similar vehicles remains elusive. Data suggests that (retail) investors continue to sell into market strength, with aggregate holdings now 23% below the peak levels seen in October 2020. However, futures positioning, likely to be more indicative of professional investors, remains more supportive, as does central bank reserve activity.
Frank’s experience covering the commodities markets spans 22 years, with a particular specialism in metals, carbon and energy markets. He has worked as a senior editor for S&P Global Commodity Insights (formerly Platts) and before this, at ICIS-LOR, a part of Reed Business Information (Reed Elsevier), where he covered the petrochemicals markets from 2003 to 2005.
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