Gold has continuously been under downside pressure for the last few weeks as the financial markets have started repricing US interest rate risk amid rising inflationary pressure and some key economic indicators turning out to be much better than expected.
The US personal consumption expenditures gauge rose more than forecast amid robust personal spending, which rose 1.80% in January as against the forecast of 1.40%. PCE core deflator m-o-m for January came in at 0.60% as against the forecast of 0.40%.
Similarly, PCE core deflator y-o-y surged 4.70% as against the forecast of 4.30%. Although Q4 US GDP data was recorded at annualized 2.70% versus the forecast of 2.90%, weekly jobless claims fell to a four-week low.
Likewise, new home sales in January printed the figure of 670k, which topped the forecast of 620k. S&P Global US services data showed that the US services sector, after contracting for 7 straight months, is back in the expansion zone.
The US macroeconomic data, at least in the near-term, reflect a better-than-expected US economy amid inflation on a rise again. This scenario doesn’t bode well for the yellow metal.
Traders look forward to crucial US data of ISM services and ISM manufacturing to be released next week.
Gold is drawing some support from geopolitical concerns as the US-China verbal wrangling continues unabated. US Treasury Secretary Ms. Yellen has warned China and other nations against providing material support to Russia.G7 countries will impose fresh sanctions on Russia. On the other hand, North Korea’s nuclear missiles firing is another geopolitical simmering spot.
Ten-year US yields were up 3% on the week as the yields settled at 3.94%.
In the present situation, the Dollar Index is expected to remain firm as economic indicators are mostly encouraging, while escalating the Russia-Ukraine war may keep the European currencies on the defensive.
Wider markets are likely to be risk-averse on lackluster Chinese demand. It is being seen that crude oil and base metals are under pressure as yields and the Dollar rise.
Gold may decline to $1780 in the coming weeks. US 10-year yields moving above 4% may hasten the pace of decline in commodities, including gold. Yields are up nearly 18% from the cyclical low of 3.34% posted only a few weeks back.
MCX Gold sellers should hedge currency exchange risk by buying equivalent USDINR.
Resistance is seen at $1830/$1850.
Gold was down nearly 1.50% on the week as it closed at $1811.60. The Dollar Index was up about 1.40% on the week.
(The author is AVP, Fundamental currencies and Commodities analyst at Sharekhan by BNP Paribas)
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