(Kitco News) - While the gold market is ending the week with modest gains, it remains caught in its weeks-long channel as resistance at $2050 an ounce continues to hold.
The gold market continues to attract investor attention even after imminent rate cuts were taken off the table, as the Federal Reserve has signaled that it will ease its monetary policy this year. Many analysts and economists expect the central bank to embark on its new easing cycle in June.
As of 1:20 p.m. ET, April gold futures were trading at $2,048.50 an ounce, up 1% from last week.
Analysts remain bullish on gold as rates will inevitably move lower; however, according to some, gold could continue to struggle as many investors look for excitement in equity markets. Other analysts believe that the S&P 500’s continued push into blue sky territory also presents an opportunity for the precious metal.
While gold has been treading water above $2,000 an ounce, the S&P 500 has been moving from record high to record high. The broad equity index is looking to end the week around 5,100 points, up roughly 2% from last Friday.
The S&P was driven higher following solid fourth-quarter earnings from Nvidia. Because of the growing AI trend, the chip maker overtook Google’s parent group, Alphabet, to become the third most valuable company in the U.S. this week. With a market cap of nearly $2 trillion, Nvidia is now only surpassed by Microsoft and Apple.
In a note Thursday, Nicky Shiels, head of metals strategy at MKS PAMP, put Nvidia’s valuation in mining terms, noting that the tech company is worth 77x more than Barrick Gold.
However, some analysts have said with only a handful of stocks driving the momentum, equity markets could be fragile and frothy. They say the gold market could benefit from safe-haven demand as equities potentially correct.
“I view gold is ripe to put some distance above $2,000 an ounce once the U.S. stock market sees some back-and-fill,” said Mike McGlone, senior market analyst at Bloomberg Intelligence. “The Fed does not ease amid speculative frenzies in risk assets.”
It’s not just the gold market that is attracting attention for its lackluster performance as investors are blinded by the brilliance in the tech sector. The mining sector continues to underperform even as gold prices remain elevated.
David Morrison, Senior Market Analyst at Trade Nation, said that disappointing performance in the mining sector could weigh on gold; however, he also noted that this negative sentiment could signal a bottom for miners and the raw commodity.
“To say that miners are unloved and unwanted is almost an understatement,” said Morrison in a comment to Kitco News. “That’s hardly surprising when you compare the unpleasantness and uncertainty of their business to the sleek and gorgeous corporates involved in AI. There is a bit of a mania surrounding generative AI.”
“In terms of short-term price movements, the current stock market rally is certainly pulling the focus. At the same time, gold and silver are struggling to persuade investors that they’re worth owning in any significant quantity. But following its spike in early December, gold is consolidating above $2,000 quite comfortably,” he added. “Precious metals can spend years doing nothing and then a strong rally appears out of nowhere. Could we see this happen in 2024? Quite possibly.”
Shiels also noted that gold is being impacted by the AI hype, but she continues to see value in the precious metal in the current euphoric environment.
“Gold is also being wrapped up in the ‘commodity-off’ sentiment even though it's sitting just beneath all-time-highs (Gold miners have been even more beaten down!). The AI/tech hype is also certainly detracting enough from Gold ETFs leading to large western investor outflows,” she wrote. “ You just don’t get rock bottom sentiment in an asset class when it's near ATHs… Something’s amiss, but it's usually a good time to swim against sentiment in gold, especially when fundamentally, physical demand remains insatiable, steady and increasingly price insensitive.”
With the Federal Reserve firmly in “hurry up and wait” mode until at least June, some market analysts have said that investor attention will focus on sentiment in the equity market with economic data having little impact, even with a full docket of reports coming out during the coming week.
Markets will receive important inflation data next week with the release of the core Personal Consumption Expenditures Index (PCE), which is the U.S. central bank’s preferred inflation gauge. Markets will also get more home sales data and important information regarding activity in the manufacturing sector.
Economists have said it will take some reasonably disappointing economic news to shake the bullish sentiment in equity markets.
Economic data for the week
Monday: US new home sales
Tuesday: Durable goods orders, US consumer confidence
Wednesday: Preliminary Q4 US GDP,
Thursday: US Core PCE, personal income and spending, weekly jobless claims, pending home sales,
Friday: ISM manufacturing PMI
