The gold market ended last week with another all-time high. The trigger was weaker US economic data, which, in the markets’ view, effectively gave the Fed the green light for further easing. The spot price closed clearly above $3,600 per ounce at $3,644.60 per ounce of gold – a weekly gain of 1.6%. Silver also continued its breakout, marking another 14-year high above $42. The spot price: $42.11 per ounce, almost 3% higher than a week ago.
The interesting question is how much monetary policy easing is already priced in. Analysts see gold rising not only in response to anticipated interest rate cuts but also due to uncertainty surrounding US monetary policy. According to them, a noticeably weaker US labor market and recession risks could trigger a 100 basis point cut – with the risk of the Fed overshooting. This confusion supports the gold price.
Gold Breakout Intact
Other experts consider the technical breakout towards $3,700 per ounce to be intact with moderate Fed steps, with clear upside risks if the central bank becomes more aggressive. Given the two-year yields, a 100 basis point reduction in the key interest rate is justified by year-end. Following the updated labor market data – which provisionally removed almost one million jobs from US employment statistics last week, three times less than the ten-year average and the weakest value since the series began – even a surprise 50 basis point move is conceivable. Such a “panic measure” would have data backing this time; moreover, the Fed could signal more cuts until 2026. This very dovish scenario is not yet priced into gold and could drive it significantly above the $3,700 target.
However, the market remains skeptical: The CME FedWatch Tool sees only a 5% chance of a -50 basis point cut next week. And the Fed projections updated in March only foresaw two rate cuts for next year. This is precisely where a short-term risk lurks: If Wall Street’s expectations are not met, a backlash threatens.
50 Basis Point Rate Move Unlikely
Nevertheless, other voices also warn that markets are overestimating Fed easing as long as inflation remains high. A 50 basis point move is therefore unlikely. A “disappointment” is more likely, as further steps remain data-dependent, and the data points will probably continue to indicate an average total cut of 50 basis points this year. Since around 70 basis points are priced in, there would be room for a knee-jerk hawkish reaction – a burden for stocks, bonds, and gold. Long-term, Brown remains positive: pullbacks are buying opportunities, also because reserve managers would diversify and the Fed’s independence continues to be questioned.
Saxo Bank also looks beyond potential short-term weakness. The technical outlook continues to point to $3,800 per ounce, it is said. A “sell-the-fact” reaction to a rate cut is possible, but it doesn’t change the fundamentally bullish assessment – declines are also seen as a buying opportunity.
Conclusion: Gold above $3,600, silver with a 14-year high above $42 – the bulls have the momentum. The short-term signals come from the Fed’s actions (25 vs. 50 bp, Dot Plot, path until 2026). For investors, this means: Pay attention to signals, plan for pullbacks – and keep an eye on the big picture, which currently continues to point upwards.
