Gold’s relentless rise through the last few months have resulted in several record highs. None as significant as the $3,000-per-ounce mark hit on Friday.
Gold prices surged following the release of US inflation data for February, which indicated that price pressures were lower than anticipated.
This raised expectations about the US Federal Reserve cutting interest rates in the upcoming months.
Lower interest rates support gold prices as it is a non-yielding metal.
Cautious approach
“Ultimately, this is grist to the mill for those who expect the Fed to quickly resume rate cuts due to rising US economic risks,” Thu Lan Nguyen, head of commodity research at Commerzbank AG, said in a report.
“However, we would be cautious about jumping on the bandwagon too soon.”
Gold prices hit a record high of $3,017.10 per ounce on COMEX last week. Prices have since fallen a bit below the $3,000 mark.
At the time of writing, the April gold contract on COMEX was at $2,999.70 per ounce, down 0.1% from the previous close.
Analysts expect traders to exercise caution on gold’s new high.
According to David Morrison, senior market analyst at Trade Nation, the fact that gold has fallen back below $3,000 per ounce, suggested that “traders are treating this level as an area to take profits and/or go short, rather than as a marker for buy-stops and taking on fresh long positions”.
He added:
But it seems likely that most short-sellers will have their stops placed a bit above the big figure. In addition, it takes time for traders to get comfortable trading in uncharted territory.
Inflation risks remain
While the current spotlight is on the repercussions of US tariff policies on the economy, it is crucial not to overlook the equally substantial risks posed by inflation.
The interplay between tariffs and inflation can create a vicious cycle: tariffs can lead to higher prices for imported goods, which can in turn fuel inflation.
Furthermore, if businesses anticipate continued tariff increases, they may raise prices preemptively, further exacerbating inflationary pressures.
Additionally, the Federal Reserve’s response to tariff-induced economic slowdown could also have inflationary implications.
Source: CME Group
If the Fed lowers interest rates or implements other expansionary monetary policies to counter the negative effects of tariffs, it could inadvertently stimulate inflation by injecting more money into the economy.
“It is by no means certain how the Fed will ultimately balance these two risks,” Lan Nguyen said.
Commerzbank economists believe the US central bank will likely consider the inflationary impact of tariffs when determining interest rate adjustments.
Therefore, the German bank anticipates that rate cuts will occur later than current market expectations.
“As a result, even if we do see gold rally again in the short term, it is unlikely to last long,” Lan Nguyen added.
Silver, platinum move up
“The surge in the price of gold to a record high has also lifted the prices of other precious metals in recent days,” said Carsten Fritsch, commodity analyst at Commerzbank.
Silver prices on COMEX have breached the $34 per mark, which was last seen in October 2024.
Palladium rose to $975 per ounce, while platinum reached $1,000 per ounce for the first time since mid-February last week.
“Platinum and palladium in particular are extremely cheap compared to gold. The price discount of both platinum group metals to gold is around USD 2,000 per troy ounce, which is a record level,” Fritsch noted.
The historical gold-to-platinum and gold-to-palladium price ratio is at a record high of 3:1.
“The undervaluation of silver is not quite as pronounced. Although the gold/silver ratio has recently fallen to 88, it is still at a high level,” Fritsch added.
Fritch said:
We therefore see potential for silver, platinum and palladium to catch up with gold.
“Silver is also making positive progress, and $34 remains a key level for it to break above and then hold,” Trade Nation’s Morrison said.
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