Monthly gold update

The gold price built on its strong surge in January to end February at US$2,858, a monthly increase of 2.1%. Gold set nine new all-time highs during the month. The metal’s gain was achieved despite a near $100 sell-off in the last week of the month, which coincided with a rebound in the value of the US Dollar. Prior to this, the greenback had been weakening versus a basket of other major currencies, while lower real bond yields had also provided a tailwind for gold during the month. Central bank buying continued providing support to the gold price, while physical gold exchange-traded products had the highest monthly flows globally for nearly three years. The perceived “safe haven” asset is benefiting from increased stockmarket volatility and geopolitical uncertainty.

Gold spent much of February pushing ever closer to US$3,000, setting nine all-time highs in the first few weeks of the month. Not even a higher-than-expected US inflation reading could derail the rally, although there was some profit-taking a couple days after the CPI report when the latest retail sales data came out much weaker than was forecast. This dip also coincided with the US administration’s announcement of reciprocal tariffs on imports from any country that imposes their own tariffs on US exported goods, scheduled to kick in on 2 April.

Uncertainty around inflation at a time when the US economy appears to be slowing down could pose a challenge for the Fed, which is in no hurry to reduce interest rates further. US Treasury Secretary Scott Bessent explained during the month that the Administration is more concerned with seeing lower yields on 10-year Treasuries than the short-term interest rates driven by the Fed. Bond yields were significantly lower in February, reflecting the more pessimistic outlook for the US economy. Lower yields bring down the opportunity cost of holding the non-yielding gold asset.  

The US Dollar was also lower versus a basket of major currencies, with market participants turning away from the greenback in an unwinding of positions favouring a strong USD post the Presidential election. The slowing US economy is weighing on USD appetite. The EUR strengthened versus the USD on the back of improving European economic data and the growing possibility of an end to the Russia-Ukraine war. 

Keep an eye on …

The US economic growth outlook is perhaps most important now, particularly in light of the inflation forecast, as further deterioration could force the hand of the US Administration, the Fed or both. The market is pricing in two rate cuts in 2025. This would generally be positive for gold.

Also watch movements in currency exchange rates involving the USD and Treasury yields versus other government bonds, but probably most importantly in Europe.

It will be interesting to see whether flows into gold exchange-traded products continue in March, following such a strong February. Any dips in the gold price could provide an enticing entry point, especially if uncertainty persists and the USD remains relatively weak.