The metal benefitted from the peak rate narrative being pushed by the markets as inflation readings in the US, Australia, New Zealand, and the UK came in short of forecast, which has given rise to a possibility of key central banks soon hitting a pause button in their rate hike mission aimed at reining in inflation.
Apart from inflation, the somewhat weaker-than-expected US nonfarm payroll report for June has also played a key role in reinforcing peak rate possibility.
According to analysts, investors new positions is what caused gold prices to increase. Gold remained range-bound on Thursday as investors awaited the release of US jobs data, which could impact the Federal Reserve’s monetary policy decisions.
Globally, the price of gold was down 0.6% at USD 1,926 per ounce in New York. The Spot gold stabilized at $1,917.69 per ounce, while U.S. gold futures dipped 0.2% to $1,923.60. The decline in the dollar index made gold more affordable for international buyers, but higher benchmark yields limited gold’s upside potential.
Yellen has continually downplayed the significance of lift-off, placing more importance on the gradual path of rate increases as the Fed normalizes monetary policy. Earlier this week, the Wall Street Journal reported that FOMC members may struggle to form a consensus on the language in Wednesday’s statement regarding the pace of tightening. In September, the FOMC projected that the Fed Funds Rate would reach 1.4% in 2016 and 2.6% in 2017, according to its median forecasts.
An upward move by the Fed is viewed as bearish for gold, which struggles to compete with high-yield bearing assets.
Elsewhere, the U.S. Department of Commerce said Core Retail Sales in November increased by 0.6%, following a 0.2% increase a month earlier. The core figure strips out volatile categories such as gasoline, automobile and food sales. Separately, the Labor Department said its Producer Price Index increased by 0.3% in November, following a 0.4% decline a month earlier. The data could provide the retail industry with momentum for the final weeks of the Holiday season.
Rising yields and a rebound in the US Dollar Index pushed the metal lower Friday. Gold closed with a loss of 0.52% at $1961.96 Friday.Macroeconomic data out of Europe have been hardly encouraging. UK’s inflation fell to the lowest level in the last fifteen months as the annual consumer price growth cooled significantly from 8.70% in May to 7.90% in June.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell by more than 0.30% to an intraday low of 97.32. Since reaching a 12-month high at 100.60 last week, the index is down by roughly 2.5%.
With no immediate banking/financial concerns, the safe haven appeal of the metal has been dented, thus, gold has to rely on yields and dollars for its upward traction.
Craig Erlam, a senior markets analyst at OANDA told news agency Reuters, “gold could face downward pressure in the near term unless there is a significant combination of economic data that convinces Federal Board policymakers to maintain their current stance. Investors are closely monitoring initial unemployment benefit claims, the ADP National Employment report, and the Job Openings and Labor Turnover Survey (JOLTS) for further insights.”
Manav Modi, Analyst, Commodity and Currencies, MOFSL, said, “Gold and silver prices inched lower in the yesterday’s session as the dollar and bond yields firmed, while markets turned cautious ahead of upcoming US consumer inflation data and a swathe of major central bank meetings this week. Inflation data, due today, is expected to bring further clarity on the Fed’s decision, given that the central bank’s main goal in this aggressive rate hike cycle has been to bring down inflationary concerns. While inflation is well below the near 40-year highs seen through 2022, it is still above the Fed’s 2% annual target.”
Modi added: “The expectation is of 4.1%, quite lower than the previous number of 4.9%; which, if reported, it could support metal prices. Markets participants are pricing in a more than 80% chance of the Fed keeping rates unchanged, and a 60% chance of a hike in July, according to CME’s Fedwatch tool. Broader trend on COMEX could be in the range of $ 1940-1980 and on domestic front prices could hover in the range of Rs 59,250- 59,850.”