With fourth quarter U.S. GDP growth, durable goods orders, weekly jobless claims, pending home sales, and preliminary S&P World Manufacturing and Services Index data in the U.S. United for January which are better than expected, the chances of a soft landing for the US economy have increased.
The preliminary estimate of fourth-quarter US GDP showed the US economy grew at an annualized 2.90% against a forecast of 2.60%, while durable goods orders rose 5.6% in December against an estimate of 2.5%.
The US Dollar Index continues to defend crucial support around 101.25. Better than expected US data combined with the somewhat higher reading of core PCE inflation data would keep US 10-year yields supported above 3.50%.
The Core PCE inflation reading is the Fed’s preferred inflation indicator. The mother of the PCE deflator for December came in at 0.1%, which topped estimates of 0.0%, although it matched the reading of 0.1% for November.
The December core PCE deflator data matched the forecast of 0.3%; however, it was above the 0.20% reading for November.
It is entirely possible that the US Dollar Index will recover some of the lost ground before the FOMC meeting’s decision on February 1 on the partial unwinding of the FOMC’s dovish bets. Although the Federal Reserve is considering a 0.25% hike in the federal funds rate Inevitably, the US Fed should adopt a hawkish position, because despite aggressive rate hikes, financial conditions have eased considerably in recent months, which mitigated the impact of the sharp increases.
Decent GDP data would prompt the US central bank to take a hawkish stance.
It should be noted that China’s gold demand has weakened somewhat. Additionally, ETFs, the main support for gold prices, have yet to see significant inflows.
Broader markets could weaken a bit as U.S. crude oil inventories continue to rise, while China’s physical demand for industrial metals still lives up to expectations that led to sharp increases in prices. metal prices.
Overall, the outlook for gold remains constructive given fears of recession or stagflation in the US, geopolitical concerns due to the Russian-Ukrainian war, high inflation, limited room to maneuver major central bankers to raise rates further, central bank buying and the global slowdown.
However, in the short term, the yellow metal could consolidate its achievements. In this process, a drop from the support at $1900 is likely. The upside may remain capped at $1950.
The Federal Reserve looks dovish at its FOMC meeting, or market participants interpreting the Fed as dovish will help the metal conquer the $1950-$1960 resistance zone to aim for the $1975 level.
(Author Praveen Singh is AVP, Fundamental Currency and Commodities Analyst at Sharekhan per
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