Gold set for big weekly jump amid rate-cut expectations, market volatility
Gold prices climbed on Friday, putting the metal on track for its strongest weekly performance in a month as markets contended with uncertainty linked to a backlog of economic data following the US government’s six-week shutdown.
Silver also extended its rally, News.Az reports, citing Bloomberg.
Bullion traded above $4,200 an ounce, poised for a weekly gain of roughly 5%, recovering all losses from the previous session. Anticipation of another potential US interest rate cut — driven by a weakening economic outlook — continued to support gold, which becomes more attractive when borrowing costs fall due to its lack of yield. Silver rose more than 10% over the five-day period, moving closer to last month’s record high.
Gold’s rise this week may also have been amplified by a so-called “gamma squeeze,” a technical pattern whereby dealers who sold cheap options are forced to buy bullion futures as a hedge. In a thin market, any sudden rise in price can increase the urgency to buy and snowball into a surge even without fresh demand from physical buyers.
Gold’s recovery this week fits this dynamic, Daniel Ghali, a strategist from TD Securities, said in a note on Thursday, with a recent drop in over-the-counter trading volumes making the market easier to push around. “This liquidity vacuum may actually have been key for setting up a gamma squeeze, resulting in a second shock wave higher this week,” he said.
Though it has retreated from a record above $4,380 last month, gold is still up nearly 60% this year and remains on target for its best annual performance since 1979. Central banks have stepped up purchases, seeking a store of value and asset diversification, while investors have piled into the metal as a hedge against growing fiscal unease in some of the world’s biggest economies.
Bullion continues to find support from the prospect of the Federal Reserve injecting further liquidity into the financial system. The US central bank “won’t have to wait long” before purchasing assets to sustain desired liquidity levels, Roberto Perli, who runs the System Open Market Account at the Federal Reserve Bank of New York, said this week.
Last month, Fed officials announced they would stop shrinking their balance sheet — which drains liquidity — starting Dec. 1, amid volatility in short-term funding markets.
Meanwhile, the market is divided on whether a flood of data when Washington returns from its longest-ever shutdown will show enough weakness to justify another rate cut. Expectations were scaled back as the week progressed, with Fed officials showing little conviction for reducing the cost of borrowing. Federal Reserve Bank of Minneapolis President Neel Kashkari said he remains undecided on next month’s rate decision, while his counterpart for Cleveland, Beth Hammack, argued for rates to be kept steady.
Swap traders trimmed their bets on a December interest rate cut to about 50% from more than 60% earlier this week.
Gold rose 0.9% to $4,209.82 an ounce as of 11:32 a.m. Singapore time. The Bloomberg Dollar Spot Index was down 0.1%. Silver rose 2.3% to $53.50 an ounce, while platinum and palladium also gained.
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