Seemingly dovish, the Federal Reserve, as it failed to sound convincing at the FOMC meeting concluded Feb. 1, sent the yellow metal to a fresh cyclical high of $1959 (spot) as US yields lagged 10-year fell to a new cyclical low of 3.33. %, pushing the US Dollar to a new cyclical low of 100.57.
The dollar sank on traders’ notion that the European Central Bank and Bank of England would raise rates much more than the Federal Reserve would as the US central bank approaches its terminal rate.
This notion has played a big role in the greenback’s sharp decline in recent months. However, this speculation of incremental differential rates against the dollar was sabotaged by the ECB and the BoE, as these two central banks, according to their respective pressers after their monetary policy decisions, seemed to indicate that even their terminal rates were in full view.
This revived the moribund US dollar, which weighed heavily on the yellow metal.
The US Nonfarm Payrolls report for January turned out to be a thunderbolt, as the monthly employment report came out exceptionally strong.
US employers added 517,000 jobs in May against 188,000 expected, as figures for previous months were revised upwards. The unemployment rate fell to 3.40% – a fifty-four-year low – from a forecast of 3.60%, while the average hourly wage on an annual basis exceeded forecasts.
Although much of the overall jobs added figure was due to updated demographic controls and seasonal adjustments, markets were spooked by the jobs report.
US ten-year rates jumped 3.45% to end the week at 3.519%. Downside pressure on gold mounted as US ISM services data came in at 55.20, well above the median forecast of 50.50, proving that this disastrous December reading was an anomaly.
Gold ended the week at $1,865 with a huge loss of 3.30%.
Stellar US data, with the IMF getting a bit optimistic about the global economy in 2023; The European Central Bank qualifies the risks for the economy of the euro zone as balanced; and the increased likelihood of a soft landing for the US economy after boosting the GDP, non-manufacturing ISM and non-farm payrolls report should keep the metal under pressure.
Gold could drop to $1,830 in the near term. Resistance is at $1900/$1920.
(The author is AVP, Fundamental Currency and Commodities Analyst at Sharekhan by
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