Spot gold was down around 0.50% on the week. The ten-year US yields at 4.139% gained one bps in the week, whereas the two-year yields slipped 3 bps to end the week at 4.36% . The US Dollar Index closed with a weekly gain of nearly 0.15% at 103.37.
In the week ending January 26, four major central banks concluded their monetary policy meetings.
Bank of Japan, as expected, kept its benchmark rate and ten-year JGB target yield unchanged at -0.10% and 0%, respectively, in its January monetary policy meeting. Japan’s Governor Ueda said the economy is moving towards the 2% inflation target.
Similarly, the People’s Bank of China, the Bank of Canada, and the European Central Bank also kept their benchmarks unchanged. Still, these central banks, except for China’s central bank, were not dovish on the balance.
China’s Central Bank’s Government said that the Central Bank will cut the reserve requirement ratio by 50 bps on February 5. China’s Central Bank and the government are facing mounting pressure to shore up the economy and tumbling stock market.
Meanwhile, ECB‘s president Christine Lagarde said that rate cut talks were premature, though markets still found the conference statements somewhat dovish. The Bank of Canada’s Governor also said it was too early to think about rate cuts. The PMIs data (December) out of the US and the UK topped the respective forecasts.
The US S&P Global Services PMI (December) was noted at 52.90 vs the forecast of 51, whereas the manufacturing PMI at 50.30 was way above the estimate of 47.90 as the Index recorded the fastest pace of expansion since October 2022 returned to the expansion zone. US 4Q advanced GDP data with an annualized 3.30% growth rate beat the estimate of 2.00%. New home sales (December) and ex-transport durable goods orders (December – preliminary estimate) also topped the forecast. The US data keep on belying the expectations of a weakness in the US economy on resilient US consumers, thus slowly denting the hopes of aggressive rate cuts.
Next week’s major events include the monetary policy decisions of the Bank of England and the US Federal Reserve. Investors will be interested particularly in the Fed’s monetary policy. Although the US Central Bank is expected to keep the benchmark rate unchanged, investors will look forward to the Bank’s assessment of the economy and guidance for possible rate cuts in 2024. The CME FedWatch Tool indicates no change in rates for the January meeting, though it indicates a 46% probability of the Fed cutting rates by 25 bps at its March 20 monetary policy meeting.
Apart from these monetary policy decisions, the US ISM manufacturing PMI and monthly job report of January will also be crucial for the yellow metal.
Gold is drawing some support from Houthis continuing to engage the US and the UK in a localized conflict; however, this low-key conflict may not be enough to support the metal for long. Unless the US data starts showing weakness consistently or geopolitical tensions escalate, gold may struggle to rise. The metal may decline to $1960/$1970 in the near term.
Total known global gold ETF holdings continue to languish at a four-year low level, which shows poor investment demand for the metal.
Support is at $2000/$1990/$1960-$1970. Resistance is at $2040/$2050/$2065.
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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