Gold Hits $3,000 as Fed Rate Cut Bets Rise (17-21 March)

The dollar index held steady as markets balanced trade war concerns against weak consumer confidence. Optimism improved following progress in averting a U.S. government shutdown.

The Federal Reserve is expected to maintain interest rates next week, with attention shifting to updated economic projections. The euro climbed to $1.09, supported by Germany’s fiscal reforms, while the pound slipped to $1.29 after an unexpected contraction in UK GDP. Meanwhile, the yen remained near a five-month high as rising wages supported expectations of a Bank of Japan rate hike.

Gold soared to a record $3,000 per ounce, fueled by expectations of Federal Reserve rate cuts, escalating trade tensions, and strong ETF and central bank purchases. Silver also rallied, reaching $33.90 which is its highest level since October as investors turned to safe-haven assets. Softer U.S. inflation data further eased concerns over monetary tightening, reinforcing gold’s upward momentum.

U.S. Treasury yields climbed for a second consecutive week, with the 10-year yield reaching 4.3% and the 2-year at 4%. In Europe, German bond yields stabilized at 2.88% following last week’s budget-driven rally. Meanwhile, Japan’s 10-year bond yield surged to 1.58%, its highest level since 2008, as expectations for policy tightening gained traction.

JAPAN GDP (Q4)

Japan’s economy expanded by 0.6% in the fourth quarter, slightly below the 0.7% forecast but exceeding the previous quarter’s 0.4% growth. Private consumption remained stagnant, while business investment increased by 0.6%, surpassing expectations. Government spending advanced by 0.4%, with net trade contributing 0.7 percentage points to overall growth. Exports rose by 1%, though at a slower pace than the 1.5% recorded in Q3, while imports declined by 2.1%. On an annualized basis, GDP growth accelerated to 2.2%, up from 1.4%.

JOLTS Job Openings (Jan)

U.S. job openings climbed by 232,000 to reach 7.74 million in January, exceeding market expectations. The largest gains were observed in retail, finance, and healthcare, while professional services saw a decline. Hiring edged up to 5.39 million, while separations increased to 5.25 million.

US CPI (Feb)

U.S. inflation cooled to 2.8% in February, down from 3% in January. Energy prices declined, while shelter and transportation costs moderated. Food inflation saw a slight uptick. On a monthly basis, CPI rose by 0.2%, easing from January’s 0.5% increase. Core inflation dropped to 3.1%, marking its lowest level since April 2021.

BoC Interest Rate Decision

The Bank of Canada reduced its benchmark interest rate by 25 basis points to 2.75%, bringing total cuts since June 2024 to 225 basis points. While economic growth outperformed expectations in Q4, it is projected to slow due to escalating trade tensions. Inflation is expected to rise to 2.5% as tax credits phase out, though core inflation may continue to decline.

Initial Jobless Claims

U.S. initial jobless claims fell by 2,000 to 220,000, reaching a three-week low. Continuing claims declined to 1.87 million, contrary to market expectations. Despite government job cuts, overall claims remain at historically low levels, highlighting continued labor market strength.

PPI (Feb)

The U.S. Producer Price Index remained unchanged in February. Prices for goods increased by 0.3%, while service sector prices declined by 0.2%. On an annual basis, PPI rose by 3.2%.

UK GDP (Jan)

The UK economy contracted by 0.1% in January, partially reversing December’s 0.4% expansion. The decline was driven by a 1.1% drop in manufacturing and a 3.3% decrease in mining, while the services sector saw a marginal 0.1% gain. Over the three months leading up to January, GDP posted a modest 0.2% increase.

German CPI (Feb)

Germany’s inflation rate remained at 2.3% in February. Energy prices declined by 1.6%, while food inflation accelerated to 2.4%. Core inflation dropped to 2.7%, the lowest level since September 2024. On a monthly basis, CPI rebounded by 0.4%, with EU-harmonized inflation rising to 2.6%.

Currencies

The dollar index remained stable as markets weighed trade war concerns and weak consumer sentiment. The euro approached $1.09, supported by Germany’s fiscal policy changes, while the pound weakened to $1.29 following a contraction in UK GDP. The yen hovered near a five-month high amid growing expectations of further rate hikes by the Bank of Japan. Meanwhile, the Canadian dollar traded near 1.44 per USD, pressured by trade tensions and the Bank of Canada’s rate cut.

Commodities

In commodities, gold surged to $3,000 per ounce, supported by heightened risk aversion and increasing speculation of Federal Reserve rate cuts. Strong inflows into gold-backed ETFs and ongoing central bank purchases further reinforced gains. Silver climbed to $33.90, benefiting from demand for safe-haven assets and weaker U.S. inflation data.

Equities

Although U.S. indices saw some recovery towards the weekend, they ended the week in the red. The Nasdaq and S&P 500 declined by approximately 2.5%, while the Dow saw a steeper drop of around 3.5%.

Leading the declines were tech giants such as Google, Meta, and Apple, with Apple experiencing the sharpest drop at 10%. Meanwhile, Nvidia stood out as one of the few stocks to close the week in positive territory, gaining 8% after struggling in previous weeks.