COMEX Gold prices mostly edged higher during the week, as the dollar doom started with last week’s NFP data. Friday’s labour data showed signs of slowdown in the jobs market, with non-farm payrolls falling to a two and half year low of 209K job additions.
Meanwhile, US inflation print released during the week prompted further pain for the greenback. In the recent Beige book survey, the Federal Reserve said the US economy has shown an overall increase in activity since late May, though most regions expect the pace of expansion to weaken.
Three Federal Reserve officials on Monday said policymakers will need to raise interest rates further this year to bring inflation back to the central bank’s goal.
Cleveland Fed chief Loretta Mester, speaking at an event hosted by the University of California, said her own view also “accords with” Fed officials’ median forecast for two more rate increases.
Most policymakers expect to increase rates by a further half percentage point by the end of the year, according to projections released after their June gathering.
At the same time, officials also acknowledged that the end of the current monetary policy tightening cycle is getting close. Hawkish comments from Fed officials at the start of the week prompted some weakness in the yellow metal.
The US Federal Reserve Vice-chair for Supervision, Michael Barr, said the Fed is close, but still has a bit of work to do.However, the major dollar unwinding happened after the US CPI data on Wednesday. US inflation pressures are showing broader signs of moderation with both headline and core rates undershooting expectations in June.
Undoubtedly, the recent US inflation data provided a much-needed boost for the yellow metal. US CPI slowed to 3% in June — the lowest since March 2021 — while the core CPI, which excludes volatile items such as food and energy, fell to 4.8% in June from 5.3% in the prior month.
The main upward pressure was seen from the housing costs, with owner’s equivalent rent rising 0.4% m/m and primary rent rising 0.5%.
However, this might slow rapidly through the second half of 2023, leading to an overall ease in core CPI. Cooling inflation improved the optimism that the Federal Reserve’s rate-hiking campaign may be nearing an end.
With the PPI numbers confirming the deflationary trends, the dollar index plunged to a 15-month low of below 100 levels, while the US 10- year treasury yields shed 27 bps this week alone, aiding the bullions.
Even though the CPI surprise might not keep the Fed from hiking rates in July, a September hike looks less likely. Money markets are now clearly pricing in another quarter-point hike when the Fed meets in July, and pushed back against any rate cuts this year.
The US retail sales and housing sector data will be in focus for the coming week. The inflation fight is not yet over. If pressures remain elevated, we might see rising odds of a September hike, which might act as a headwind for gold prices in the short term. Else, the yellow metal might continue to ride on dollar weakness.
(The author is VP-Head Commodity Research, Kotak Securities Ltd)
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