Gold hits fresh record high in January; next target seen at $1,960

Bullish momentum in gold continued in the second week of January, too, as the metal continues to attract investors on its safe-haven appeal and bright prospects this year on the worrisome situation of the global economy.

Key central bankers have jacked up interest rates aggressively to control rampant inflation. Although inflationary pressure has abated to some extent, overall inflation readings continue to remain elevated and much above the deemed target levels of the central banks, which means central bankers need to hike rates further to bring about further demand slowdown in a disconcerting scenario in which economic situations in key economies have already started flashing alarming signals.

That clearly spells out a risky scenario for the risk assets, thus investors continue to pile up gold as insurance to their portfolios.

Gold bulls have also been enthused by China’s Central Bank buying gold for the second month in a row in December ember as it bought 32 tonnes of gold in December.

The US inflation reading cooled down further in December as the headline inflation figure slid to 6.5% from 7.1% in November. Market participants continue to remain fixated on the path of the US monetary policy as they sift through every crucial data and economic report to validate their own views of the Federal Reserve slowing down further in its rate hike spree.

Although the US Fed continues to remain hawkish in its outlook, investors don’t seem to agree with the Bank as the former look for rate cuts in the latter part of the year as the economy slows down significantly.

The US Dollar Index continues to soften as the US treasuries attract strong interest. Bank of Japan’s monetary policy shift that includes widening the yield band of its 10-year JGBs (Japanese Government Bonds) and expressing its intention to assess the impacts of its extremely easy monetary policy is a crucial factor weighing on the Greenback.Moreover, China’s reopening also exerts downside pressure on the US Dollar.

The sharp decline in energy prices amid mild winter in Europe are supportive of a rebound in Euro and Pound, thus adding to the bearish Dollar momentum. In addition, US one-year inflation expectations in January have tumbled to 4%, the lowest since April 2021.

Gold prices appreciated nearly 3% in the second week of the year and the month ending January 13, which is a huge gain.

Next week’s focus will be on US housing, retail sales, industrial production, and Philadelphia Fed manufacturing data. The metal is expected to rise to $1960 in the near term, though some consolidation is possible before the next leg is higher. The outlook remains positive.

(The author is AVP, Fundamental currencies and Commodities analyst at Sharekhan by )

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