By Jigar Trivedi
Comex Gold steadied near $1,840 an ounce after retreating from multi-month highs in the previous session, as investors look ahead to a key US jobs report that could shed light on the Federal Reserve’s policy tightening path. The metal fell more than 1% on Thursday after data showed that US private employment increased by 235,000 jobs in December, far exceeding expectations for a 150,000 rise. The latest JOLTs Job Openings figures and jobless claims numbers also pointed to a still-tight US labor market, giving the US central bank room to keep raising interest rates. Meanwhile, concerns over the health of the US economy continued to support gold prices as the latest US manufacturing and services PMI data indicated weakening activity in the world’s largest economy.
The dollar tested the 105 for the first time in three weeks as investors digested a slew of job market data that paved the way for an aggressive Federal Reserve. Stronger-than-forecasted ADP and JOLTs Job Openings figures, coupled with a decline in jobless claims numbers, pointed to a still-tight labor market, which, in turn, fueled bets that rates would have to move even higher to cool the economy.
On the policy side, minutes from the FOMC December meeting also echoed this view, with policymakers committed to pushing rates higher and holding them at a restrictive level until there were clear signs that inflation was easing. Fed policymakers continued to anticipate that ongoing increases in the federal funds rate would be appropriate and that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time, minutes from the December meeting showed.
Also, several participants noted that historical experience cautioned against prematurely loosening monetary policy, given the persistent and unacceptably high level of inflation. At the same time, no participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. The Federal Reserve raised the Fed funds rate by 50bps to 4.25%-4.5% during its last monetary policy meeting of 2022, pushing borrowing costs to the highest level since 2007, and in line with market expectations. It was a seventh consecutive rate hike, following four straight three-quarter point increases.
From an economic data point of view, the US will release inflation for December on next Thursday and as per the Reuters forecast, it is likely to come on a lower side. other than this, no major economic release is due. USDINR has been trading in a tight range but 83.60 – 83.90 range support has been challenged recently. Gold may drop below a key $1,840 an ounce and finish the week likewise, MCX Gold February may drop to Rs. 55,000 to 54,300 per 10 gram in the coming week.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views are author’s own.)