Sharp correction not ruled out now post 10% gold rally from lows
Receding odds of a Fed rate hike in the near term and continuing Hamas and Israel war boosted gold to build on its previous weekly gain of $100. Gold closed with a weekly gain of $50 at $1982, which translates into a weekly gain of roughly 2.70%. The yellow metal was up 0.40% Friday in a volatile session.
The Federal Reserve Chair Powell’s speech at Economic Club of New York essentially echoed and underscored the views of the other key Fed officials. Fed’s Powell, although he acknowledged that the US economy was doing well and the monetary policy was not too tight, cited high yields reducing the need to do more hikes. He shared the neutral guidance of other Federal Reserve officials like Jefferson, Harker, Bostic, Goolsbee and Barr. Dallas Federal Reserve President Ms Logan remains somewhat hawkish as she said that she was not sure about inflation moving to the Fed’s goal of 2%. Odds of a rate hike in the next two FOMC meets have dropped to 20%.
Situation in the Middle East remains volatile and disconcerting as the Hamas-Israel war rages on. It is understood that Israel will send its soldiers to Gaza for land invasion anytime as Israel’s government aims to eliminate Hamas completely. Skirmishes with Hezbollah amid severe warnings by Iran continue. The US and the UK have made it clear that they stand with Israel. Possibility that the ongoing conflict may broaden into a Middle East regional war is keeping gold well bid.
While geopolitical factors continue to support gold prices, the yellow metal faces headwinds of elevated US yields and a firm Dollar. The ten-year US yields reached a fresh 16-year high as the yields approached 5%. The two-year US yields reached the highest level since 2000. The ten-year US yields were up nearly 7% as the yields settled at 4.92%. The US Dollar Index at 106.16 was down nearly 0.60% in the week on dovish Fedspeak, however, the trend may not last long on risk-off scenario and the fact that the US economy is doing better than its peers. Gold has rallied nearly 10% after hitting its cycle low of $1820 in early October, thus a sharp correction is not ruled out. The yellow metal is likely to be volatile as bulls aim for $2000.
Next week, investors will closely watch the US manufacturing PMI, services PMI, new home sales, 3Q A GDP, the Federal Reserve Chair Powell’s preferred gauge of inflation PCE deflator, University of Michigan consumer sentiment and inflation expectations data. The Euro-zone’s key economic releases include services and manufacturing PMI and Germany’s IFO business climate data. The European Central Bank officials will meet for the Bank’s monetary policy decision. The UK’s data next week include monthly job data, manufacturing and services PMIs. Japan’s manufacturing and services PMIs will also be in focus.
Support for the metal is at $1965/$1945. Resistance is at $2000/$2025.(You can now subscribe to our ETMarkets WhatsApp channel)
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