Market pricing for early and aggressive rate cuts is clearly a positive for non-yielding gold, with Fed fund futures currently implying a 59% chance of a U.S. cut as early as March. A week ago that probability was around 20%.
There are also 125 basis points (bps) of easing implied for all of 2024, up from 80 bps a couple of weeks ago.
In addition, markets are pricing in an 80% chance of the ECB easing in March, although the hawkish head of Bundesbank pushed back against such prospects in an interview over the weekend.
ECB President Christine Lagarde will have her chance to comment in a speech and Q&A later on Monday.
Such extreme pricing leaves the market vulnerable to pullbacks, and both Fed funds and Treasuries ran into selling on Monday. Yields on U.S. two-year notes rose almost 4 bps, but that follows a drop of 40 bps last week.
German two-year bunds also look susceptible to some profit-taking after yields dived 41 bps last week.
Bonds really need U.S. November payrolls on Friday to be solid enough to support the soft-landing scenario, but not so strong as to threaten the chance of easing.
Median forecasts are for payrolls to rise 180,000, keeping unemployment steady at 3.9%.
Many analysts suspect risks are to the upside, with Goldman Sachs tipping 238,000, including a chunk of workers returning from strikes, and a jobless rate of 3.8%.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/IBZKQWAJEBIEXBRA7XNAGEVAWY.jpg "Gold makes the running as oil fails to fire 38")
