The annual inflation rate in the United States accelerated for a second straight month, reaching 3.7% in August, up from 3.2% in July. The surge in oil prices over the past two months, combined with the decline in favorable base effects compared to the previous year, has contributed to the rise in inflation. At the same time, the core inflation rate moderated for the fifth consecutive month, to 4.3%, in line with market expectations.
Recent data found that U.S. producer prices rose by the most in a year, while weekly jobless claims fell more than expected and retail sales beat forecasts. U.S. retail sales rose 0.6% month-on-month in August 2023, outpacing July’s downwardly revised 0.5% increase and beating expectations for a 0.2% advance. . This indicates robust consumer spending despite high prices and borrowing costs, increasing upside risks to the inflation outlook. The ECB’s dovish stance also benefited the greenback, with President Christine Lagarde signaling a potential spike.
Regarding investment demand, holdings of the SPDR gold ETF continue to decline and stand at 879.7 tonnes as of September 14, the lowest level since January 2020, compared to 886.64 tonnes the previous week. US 10-year yields rose above 4.3%, approaching their highest level in 15 years. Further evidence of the resilience of the U.S. economy has reinforced expectations that the Federal Reserve will maintain restrictive borrowing costs for an extended period, putting downward pressure on the underperforming precious metal.
The coming week will feature several central bank meetings, with the Federal Reserve, the Bank of England and the Bank of Japan taking center stage. In addition, the flash PMI indices of the American and European economies will be closely monitored.
We expect the Federal Reserve to temporarily suspend rate hikes in September, taking a wait-and-see approach. However, they could retain the possibility of raising rates at the November/December FOMC meetings if inflation does not calm down. This strategic pause could allow the central bank to strengthen its hawkish stance and control inflation expectations.
It is also possible that GDP growth projections will be revised upwards for 2023, reflecting recent strength in economic activity. The federal funds rate projection for 2023 could hover around 5.6%, signaling the possibility of another hike and no rate cut. Ongoing upside risks to inflation and recent economic strength could keep rates elevated, providing a near-term headwind for gold prices. In terms of price movement, COMEX Gold found support around the 200-day simple moving average (SMA) at $1,929. per troy ounce on the daily chart. Nonetheless, it may encounter resistance around the $1,970 per troy ounce mark, which represents descending trendline resistance. A sustained breakout above $1,970 per troy ounce could signal a potential temporary bottom. Until such a breakthrough occurs, gold is expected to remain in a trading range between $1,929 and $1,970 per troy ounce.
(The author is Vice President and Head of Commodity Research at Kotak Securities)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
The annual inflation rate in the United States accelerated for a second straight month, reaching 3.7% in August, up from 3.2% in July. The surge in oil prices over the past two months, combined with the decline in favorable base effects compared to the previous year, has contributed to the rise in inflation. At the same time, the core inflation rate moderated for the fifth consecutive month, to 4.3%, in line with market expectations.
Recent data found that U.S. producer prices rose by the most in a year, while weekly jobless claims fell more than expected and retail sales beat forecasts. U.S. retail sales rose 0.6% month-on-month in August 2023, outpacing July’s downwardly revised 0.5% increase and beating expectations for a 0.2% advance. . This indicates robust consumer spending despite high prices and borrowing costs, increasing upside risks to the inflation outlook. The ECB’s dovish stance also benefited the greenback, with President Christine Lagarde signaling a potential spike.
Regarding investment demand, holdings of the SPDR gold ETF continue to decline and stand at 879.7 tonnes as of September 14, the lowest level since January 2020, compared to 886.64 tonnes the previous week. US 10-year yields rose above 4.3%, approaching their highest level in 15 years. Further evidence of the resilience of the U.S. economy has reinforced expectations that the Federal Reserve will maintain restrictive borrowing costs for an extended period, putting downward pressure on the underperforming precious metal.
The coming week will feature several central bank meetings, with the Federal Reserve, the Bank of England and the Bank of Japan taking center stage. In addition, the flash PMI indices of the American and European economies will be closely monitored.
We expect the Federal Reserve to temporarily suspend rate hikes in September, taking a wait-and-see approach. However, they could retain the possibility of raising rates at the November/December FOMC meetings if inflation does not calm down. This strategic pause could allow the central bank to strengthen its hawkish stance and control inflation expectations.
It is also possible that GDP growth projections will be revised upwards for 2023, reflecting recent strength in economic activity. The federal funds rate projection for 2023 could hover around 5.6%, signaling the possibility of another hike and no rate cut. Ongoing upside risks to inflation and recent economic strength could keep rates elevated, providing a near-term headwind for gold prices. In terms of price movement, COMEX Gold found support around the 200-day simple moving average (SMA) at $1,929. per troy ounce on the daily chart. Nonetheless, it may encounter resistance around the $1,970 per troy ounce mark, which represents descending trendline resistance. A sustained breakout above $1,970 per troy ounce could signal a potential temporary bottom. Until such a breakthrough occurs, gold is expected to remain in a trading range between $1,929 and $1,970 per troy ounce.
(The author is Vice President and Head of Commodity Research at Kotak Securities)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
