Gold has had a textbook rally following the tumultuous week in the U.S. banking sector and heavy drops in Fed hike expectations as recession risks loom.
On Friday, gold surged 2% beyond $1,950/oz levels, putting it on track for a 6% weekly gain, its largest since early November 2022.
The precious metal is regarded as the premier safe haven asset in this current market climate since it does not carry any default concerns, has continuously maintained its value through periods of persistent inflation, and generally climbs during times of economic slowdown and recession.
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Gold is very sensitive to rate movements because higher interest rates raise the opportunity cost of investing in non-yielding assets like gold, and vice versa. A weaker dollar, lower Treasury yields, and a collapse in expectations for the Fed's rate hikes are all contributing to gold's bullish momentum.
Fed swaps now price in a 19 basis point hike in March, with the terminal rate forecast to reach 4.9% in May and then fall from there.
Overall, there are three 25-basis-point rate cuts priced until December 2023.
Short-term two-year Treasury yields fell by more than 40 basis points this week, the largest drop since October 1987's Black Monday.