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Gold is eyeing the $1950-$1960 band on a confluence of supporting factors aiding the continued sharp rise in gold prices.

Gold continues to show strength as the metal finished the week higher, supported by a weaker Dollar and softer yields as US data stoke recession concerns.

Ten-year yields finished the week nearly 0.5% lower as the US Dollar Index eased by around 0.20% to 101.99, which boosted the appeal for gold. The yellow metal was up 0.30% on the week.

The metal made a fresh record high in the domestic market.

Disconcerting weakness in the US economy, as reflected in key economic indicators like retail sales, US retail sales, and industrial released in the week ending January 20, have raised recession concerns.

Advance US retail sales for December declined 1.1% from November. Even November retail sales were revised lower from -0.60% on the MoM basis to -1% as nominal retail sales peaked in October 2022.

Industrial production fell 0.7% in December, thus marking the worst decline since September 2021 as manufacturing loses its momentum further due to high-interest rates and elevated prices. The data showed a decline of 1.10% in November.It is to be noted that the US yield curve has become the most inverted in at least the last four decades. The housing sector remains in shambles as US existing home sales declined for the eleventh straight month.

Job cuts in the technical sector underscore concerns about the economy.

As per a recent survey, investors estimate only 50 bps hikes more before the Federal Reserve takes a long pause. This estimate implies the terminal Fed Funds rate is much below the Fed’s projection of above 5% terminal rate. This narrative is also hurting the US Dollar.

Next week market participants will closely watch the key economic data of the Q4 advance estimate of the US GDP and core PCE price Index — Fed’s most preferred inflation gauge. The PCE data may show a continuing decline in inflation readings.

Although some consolidation is quite possible following a sharp rally in relatively a short time, the yellow metal is expected to move higher in the near term as the outlook remains positive on good fundamentals.

(The author is AVP, Fundamental currencies, and Commodities analyst at Sharekhan by

)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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