By Jigar Trivedi
Comex gold scaled an over eight-month peak on Friday, holding above the key pivot of $1,900 per ounce, as cooling U.S. inflation raised hopes for slower interest rate hikes from the Federal Reserve. Following the data, Fed policymakers expressed relief that inflation continued to ease in December, paving the way for a possible step down to a 25-bps rate hike increase at its next policy meeting in February.
US Dollar subdued near seven-month low
The dollar remained subdued against a basket of major currencies on Friday, testing the 102 neighborhood for the first time since last June, as prospects of a less aggressive tightening from the Federal Reserve spooked investors away from the greenback. In the spotlight was data showing that the annual inflation rate in the US slowed for a sixth straight month to 6.5% in December, in line with market forecasts.
That was also the lowest reading since October 2021, offering hopes that inflation peaked in June at 9.1%. Money markets are now pricing an over 90% chance that the central bank would downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December. The DXY fell roughly 1.67% this week, marking the sharpest weekly decline since early November.
US consumer sentiment rises to 9-month high
The University of Michigan consumer sentiment for the US rose to 64.6 in January of 2023 from 59.7 in December, the highest since April and beating market forecasts of 60.5, preliminary estimates showed. Both current conditions (68.6 vs 59.4) and expectations (62 vs 59.9) improved to their highest since April. Year-ahead inflation expectations receded for the fourth straight month, falling to 4.0% in January from 4.4% in December, the lowest since April 2021.
In the US, the spotlight will be taken by retail sales, producer price inflation, several housing indicators, and earnings reports for several big corporations. Also, fresh inflation data will be released for the UK, Japan, Canada, and South Africa and monetary policy meetings will be held in Japan, Norway, Malaysia, and Indonesia. Finally, investors will be waiting for Q4 GDP growth, Industrial production, and retail sales for China.
Gold price Outlook
For the fourth consecutive week, Comex gold has appreciated and closed well above $1,900 an ounce mark, registering 2.9% gain week on week basis, closing at $1,920 an ounce. The undertone is bullish and we may see further upside till $1,950 / 1,960 an ounce in coming sessions. On the other side, MCX Gold has hit an all-time high, made a fresh record this Friday crossing the previous high of Rs 56,191 per 10 gram, closing the week at Rs 56,324 per 10 gram with 580 points or 1.09% gain. The setup on daily and weekly chart structure is signalling further rally. Loing at the dollar index and gold’s chart setup, we recommend going long on every dip in the yellow metal. For the week, Rs 56,000 and Rs 55,800 is a strong support.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views are author’s own. Please consult your financial advisor before investing.)