Gold Continues to Shine After Reaching Record High Last Week—Key Level to Watch

Gold was little changed Monday morning but remains within striking distance of its record high set on Friday at $2,195.15 per ounce as investors shift their attention from last week’s employment report to key inflation readings released later this week.

The yellow metal capped off its eighth consecutive day of gains on Friday after the U.S. unemployment rate climbed to its highest level in more than two years, raising hopes that the Federal Reserve may bring forward its first rate cut this year, which markets currently expect to occur in June.

“We still believe the same underlying premise remains, which is the combination of the expectation that the Fed is still going to cut rates later this year and dollar weakness,” David Meger, director at High Ridge Futures told Reuters. Investors typically view rate cuts as bullish for gold as they tend to weaken the Greenback, making the precious metal cheaper for foreign buyers to purchase and also reduce the opportunity cost of holding bullion compared to interest bearing assets, such as U.S. Treasury bills (T-Bills).

Investors will be looking for more clues on interest rate policy this week when the Bureau of Labor Statistics releases consumer price index (CPI) data on Tuesday and producer price Index (PPI) figures on Thursday, with both economic reports helping to give a read on the current state of inflation. Fed officials have said they are looking for more evidence that inflation is under control before cutting the central bank’s benchmark interest rate.

Longer-term, gold prices remain supported by favorable tailwinds, such as ongoing geopolitical tensions in the Middle East, macroeconomic uncertainty, and historically elevated levels of inflation. Some analysts believe these factors have led to sovereign buying of the precious metal.

“China is just quietly underpinning the market, adding to the reserves,” Sean Lusk, co-director of commercial hedging at Walsh Trading told precious metals site Kitco. “A lot of central bank buying, not only by them, but by others to prop up their currencies, he added.”

The price of broke out above a year-long trading range this month and has continued to trend sharply higher since. Moreover, the 50-day moving average crossed above the 200-day moving average in December last year to form a golden cross pattern, confirming the current uptrend. It’s worth keeping an eye on the range’s top trendline around $2,080 as potential area of price support during retracements or periods of profit taking.

Gold was little changed at around $2,184 at 7:00 a.m. ET Monday.

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As of the date this article was written, the author does not own any of the above securities.