Let’s kick off a quick recap of the year for gold. Because it is the king reserve asset for many and tends to react to all kinds of themes and catalysts, gold is always one to watch for fresh short and long-term opportunities.
So, it’s usually a good practice to review its behavior around events and news catalysts, identify patterns and correlations to gain insights and understanding of the yellow metal. And by comparing this review with our trading journal, there’s potential to improve our ability to recognize significant drivers and better anticipate future moves.
Today, we’ll quickly recap the start of the year to June, which saw a broad rally higher after a slow start to the year.
Gold (XAU/USD) vs. 10-yr Treasury yield: Daily Chart by TradingView
Gold consolidated between January 1st to February 29th
Gold appears to have been caught in a tug-of-war between $2,000 and $2,070 from January through February, with price action largely driven by traders trying to balance shifting Federal Reserve interest rate cut expectations (i.e., U.S. dollar & bond yield strength) and dynamic geopolitical developments.
Starting in January, U.S. economic data often times came in hotter than expected (like January’s CPI at 3.4% vs 3.2% forecast, or like the employment report for December coming in strong on both jobs growth and wages). This often supported the Greenback and bond yields, the latter of which we saw rise back above the 4.00% handle in January.
On the flip side, escalating conflicts in the Middle East (particularly the Houthi attacks in the Red Sea) and Chinese economic concerns, likely provided support and prevented gold from breaking below $2,000. For example, when the U.S. and U.K. launched coordinated airstrikes against Houthi targets in Yemen in mid-January, gold found buyers as investors sought safe-haven assets, even when bond yields were rising.
In February, the Dollar seemed to have gotten the best over gold momentarily, at least until the middle of the month where a tick lower (but still sticky) U.S. CPI and negative retail sales growth data put a momentary cap on U.S. dollar strength.
February 29th to April 19th: Gold rallied around 17% to $2,400
Gold’s epic rally between February and April 2024 was likely driven by two main factors: rising geopolitical tensions, global data potentially signaling recession ahead, and what appears to be a serious case of FOMO (Fear Of Missing Out) among traders who watched the yellow metal break record after record.
Starting in early March, gold began its ascent as traders saw more signs of potential recession conditions ahead. It all started with a rise in the February U.S. unemployment rate from 3.7% to 3.9% and average hourly earnings growth falling from 0.5% to 0.1%. Outside of the U.S., the ECB downgraded its growth rates for 2024, while global PMI survey updates were either ticking lower than previous or already in contractionary areas.
The rally really kicked into high gear in April when geopolitical tensions skyrocketed. As noted in the April 12th Global recap, Israel braced for possible missile attacks from Iran, sending gold to new all-time highs near $2,375. I guess you could say gold bugs were having their “precious” moment, channeling their inner Gollum from Lord of the Rings!
The momentum persisted even in the face of hotter-than-expected U.S. inflation data, which would typically pressure gold lower. For instance, the March 13th report showed the U.S. Consumer Price Index growth rate for February coming in at 0.4% m/m (0.3% m/m forecast), yet gold remained resilient through the rest of the month and into April. This suggests that safe-haven demand may have overshadowed traditional interest rate concerns at that moment, at least in the gold markets.
By mid-April, gold had climbed to around $2,400, representing roughly a 17% gain since late February and new all-time highs. The sustained rally appeared to create a self-reinforcing cycle where price increases attracted more buyers, though this momentum showed signs of vulnerability to profit-taking, particularly during periods of reduced geopolitical tensions or strong U.S. economic data.
April 19th to June 28th: gold consolidated roughly between $2,300 to $2,400.
Between April and June 2024, gold prices appeared to be caught in a consolidation pattern between $2,300-$2,400, with price action likely driven by three main themes: geopolitical developments and Fed rate cut expectations / U.S. dollar’s strength.
The Israel-Iran conflict in April probably provided initial support for gold as a safe-haven asset. For instance, when Iran launched missile and drone attacks on Israel over the weekend of April 13-14, gold prices saw immediate volatility and upside bias, reaching new peaks around $2,430.
The Federal Reserve’s shifting stance on rate cuts seems to have created a ceiling for gold prices through U.S. dollar/bond yield strength. Every time gold attempted to break higher, strong U.S. data or Fed officials would come out with hawkish comments that cooled rate cut expectations, like a hawkish FOMC statement in May where policy makers continued to lean towards waiting to cut interest rates.
We also saw gold demand drivers likely influence price action, this time in June with headlines from China showing a pause new gold purchases by the People’s Bank of China. Gold prices dropped like a rock on the headline, but it was a limited move as we probably reached a point where traders may have been waiting for clearer signals on the Fed’s policy path before making bigger directional bets.
Summary:
This first half of 2024 showed gold’s remarkable journey from a relatively quiet consolidation period around $2,000 to breaking multiple all-time highs above $2,400.
The precious metal demonstrated its dual nature as both a safe-haven asset during geopolitical tensions (particularly during the Israel-Iran conflicts) and economic recession fears, and as a barometer for monetary policy expectations.
In the January – February and May – June periods, we saw gold trading counter to U.S. dollar and bond yields sentiment, while in March – April, gold maintained an impressive upward trajectory despite strong U.S. economic data and a hawkish Fed creating headwinds for the precious metal.
There’s a lot to takeaway from this, but we’ll save that for later as we’ll move on to our next gold market recap later this week before closing out with behavioral lessons and thoughts for 2025. Stay tuned!
