In summary, the FOMC meeting’s tone was more hawkish than anticipated, resulting in the strengthening of the US dollar to a six-month high and a rise in US 10-year treasury yields to 4.5%, the highest level since 2007. These factors weighed down on gold, which is a non-yielding asset.
Furthermore, data released on Thursday revealed a significant drop in US weekly jobless claims to 201k, the lowest since late January. This supports the Fed’s hawkish stance, suggesting a historically tight labor market. Meanwhile, holdings in the SPDR gold ETF continued to decline, reaching their lowest point since January 2020.
Former Federal Reserve Bank of St Louis President James Bullard also expressed the possibility of further interest rate hikes to guard against potential inflation risks, adding to the overall hawkish sentiment. Several other Fed officials are scheduled to speak in the coming days now that the blackout period has ended.
Looking ahead to the coming week, market focus will be on the US PCE price index, personal spending data, and the final estimate of Q2 US GDP. Given the recent surprise in headline CPI figures, there is a possibility of an upside surprise in PCE inflation. Additionally, consumer spending data will be closely monitored, as it has demonstrated resilience thus far. Personal spending in the United States saw a significant increase in July 2023, driven in part by consumers tapping into savings and utilizing credit cards for financing.
Whether this trend continues remains to be seen. In the near term, it is expected that yields may remain elevated, keeping gold prices subdued.(The author is Vice President, Head Commodity Research at Kotak Securities)
(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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