Gold prices jumped above $3,500 per ounce for the first time ever on Tuesday as investors reacted to economic uncertainty.
XAUUSD – Daily Chart
The price of XAUUSD has broken out to $3,527 after a fifth attempt at the highs, and that could lead to some strong follow through. The market will start positioning for a possible move to $4,000 over the rest of the year.
Stresses in the financial system have investors seeking the safe-haven asset as a hedge. A hiring slowdown is coinciding with an uptick in inflation. Meanwhile, stress in long-term bond markets is occurring due to fears over the UK and French economies. A devaluation of the U.S. dollar is also adding to the move into gold.
The United States added an average of about 35,000 jobs over three months ending in July, which marked a slowdown from roughly 196,000 jobs on average over the previous three-month period, according to Bureau of Labor Statistics data.
Inflation levels are also elevated due to tariff-induced price increases. Investors are now widely expecting the Federal Reserve to cut interest rates this month, and that is another boost for gold. Markets are now pricing a 91% chance of a 25 basis point cut from the Federal Reserve, CME data showed.
A global bond sell-off has rocked markets, led by sharp declines in longer-dated debt. The yield on 30-year Treasuries climbed four basis points to 4.97%, while UK borrowing costs hit their highest levels since 1998.
Hawkish comments by European Central Bank policy member Isabel Schnabel suggested that the central bank may not cut rates at its next policy meeting.
“Inflation is not coming down sufficiently anywhere in the developed world and this is affecting financial conditions, resulting in softer equities as holdings look ever more concentrated in certain sectors,” said Geoff Yu, FX strategist at BNY Mellon.
A perfect storm of factors has driven gold to new highs, and the fact that this is the fifth attempt at breaking through the resistance level could lead to an extended move.
