Spot gold closed with a gain of nearly 0.1% in the week ending January 27.
With US Q4 advance GDP, durable goods orders, weekly jobless claims, pending home sales, and preliminary S&P global US manufacturing and services PMI data for January coming in better than forecast, chances of soft landing of the US economy have increased.
The advance estimate of the US Q4 GDP showed that the US economy expanded by annualized 2.90% as against the forecast of 2.60%, while the durable goods orders rose 5.6% in December Vs the estimate of 2.5%
The US Dollar Index continues to defend the crucial support around 101.25. Better than expected US data combined with the somewhat elevated reading of core PCE inflation data would keep the 10-year US yields supported above 3.50%.
Core PCE inflation reading is the Fed’s preferred gauge of inflation. PCE deflator m-o-m for December came in at 0.1%, which topped the estimates of 0.0%, though it matched the 0.1% reading for November.
December PCE core deflator data matched the forecast of 0.3%; however, it was higher than the 0.20% reading for November.
It is quite possible that the US Dollar Index will recover some of the lost ground ahead of the FOMC meeting decision due on February 1 on the partial unwinding of dovish FOMC bets.Although the Federal Reserve going for a 0.25% hike in Fed fund rate is a foregone conclusion, the US Fed is expected to be hawkish in its stance as notwithstanding aggressive rates hikes, financial conditions have eased considerably in last few months, which has blunted the impact of steep hikes.
Decent GDP data would make the US Central Bank more comfortable in adopting a hawkish stance.
It is to be noted that China’s gold demand has softened a bit. In addition, ETFs, the major supporter of gold prices, are yet to see meaningful inflows.
Wider markets may weaken a bit as the US crude oil inventory continues to rise, while China’s physical demand for industrial metals is yet the meet the expectations that have led to sharp rallies in the metals prices.
Overall, the outlook of gold remains constructive on US recession or stagflation fears, geopolitical concerns due to the Russia-Ukraine war, elevated inflation, limited room for the key central bankers to hike rates further, central banks’ buying, and global slowdown.
However, in the near term, the yellow metal may consolidate its gains. In that process, a decline to support at $1900 is probable. The upside may remain capped at $1950.
The Federal Reserve sounding dovish at its FOMC meet, or the market participants construing the Fed to be dovish will help the metal conquer the $1950-$1960 resistance zone to aim for $1975 level.
(The author Praveen Singh is AVP, Fundamental currencies, and Commodities analyst at Sharekhan by
)
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