Spot gold closed with a loss of 1.08% at $1938.28 Friday as safe haven demand for the metal is weakening due to no further escalation in the ongoing Hamas-Israel war. Israel has agreed to four-hour pauses in the Gaza strip to allow humanitarian aid and assistance. It has been reported that Hamas and Israel are negotiating over release of the hostages, pauses and aids. The yellow metal tumbled 2.80% on a weekly basis.
One of the most important events ending November 10 was the US Federal Reserve Chair Powell’s remarks on November 9 in an IMF organized panel discussion on ‘monetary policy challenges in a new economy‘. He said that they were not confident that monetary policy has reached a stance sufficiently restrictive to bring down the inflation to the desired 2% goal. He added that the Federal Reserve will not hesitate to hike rates further if appropriate. He warned against inflation headfakes. The US yields rebounded as a disappointing 30-year auction also weighed on the bonds.
The week ending November 10 was a data light week. University of Michigan sentiment data released Friday came in at 60.40 Vs the estimate of 63.70. The data fell to the lowest level since December 2022.University of Michigan one-year inflation expectations at 4.40% topped the forecast of 4%, so did the 5-10 year inflation expectation data which rose to a 12-year high reading of 3.20% Vs the estimate of 3%. The UK economy was able to dodge recession in 3Q as per the preliminary data. The economy stagnated in the third quarter, which can as such be taken to be better than the expectation of a decline of 0.10% QoQ. The y-o-y reading at 0.60% in 3Q was better than the forecast of 0.50%; however, markets were unimpressed as the UK Pound struggled. The UK’s Chief Economist Huw Pill said that further hike in rates to contain inflation is not required.
Market participants are shifting their attention to the Bank of England cutting rates. Bank of Japan’s governor Ueda said that the BoJ could consider unwinding its monetary easing before the pace of wage growth exceeds that of inflation. He emphasized that next year’s shunto talks (negotiations between management and labour) will be a key event in deciding when to finally pivot away from YCC.
The ten-year US yields at 4.64% were up around 1.50% on the week; two-year yields rose nearly 4.50% on a weekly basis to 5.069%. The US Dollar Index closed with a weekly gain of around 0.80% at 105.80 as the US yields jumped.
Total known global gold ETF holdings increased by 0.015 MOz in the week, though the holdings continue to languish at almost three-year low level; however, weak investment demand is being offset by strong buying by central banks. Investment demand for gold has been weak as institutional investors continue to sell through ETFs. The holdings have dropped around 200 tonne, or 6.85% YTD. However, strong gold buying by the central banks is supporting gold prices. In the first nine months of 2023, central banks bought nearly 800 tons of gold, which is more than any January-September period on record. Thus, 2023 may see a similar level of buying as seen in 2022, the year in which central banks bought a record 1100 tons of gold.
Next week’s major US macroeconomic data to be released include US CPI (October), retail sales advance (October), PPI (October), Import and import price Index (October), NAHB housing market Index (November), Philadelphia Fed business outlook (November), industrial production, and housing starts (November). Out of the Euro-zone, focus will be on Euro-zone’s GDP (3Q Preliminary), employment (3Q preliminary),ZEW Survey expectations (November),industrial production (September), Current account balance (September), CPI inflation (October); and Germany’s ZEW survey expectations (November) and WPI (October). Uk’s major data include CPI (October), PPI (October),and Retail sales (October). China’s industrial production (October), retail sales (October), and new home price (October) data will also be released. In addition, Japan’s trade balance (October) and GDP (October) data are also due.
(The author is Associate Vice President, Fundamental Currencies and Commodities, Sharekhan by BNP Paribas)
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