Holiday-shortened next week to see gold finishing 2023 on a high note

Gold prices finished above $2,000 for the fifth straight week, with Comex Feb futures ending the week at $2066.90, up by 2.4% as the dollar lost the plot to dip sharply to five-month lows of 101.4 level after the release of PCE data on Friday. Gold prices are up 13% ytd heading into the last trading week of the year.

The 10-year US yields finished at 3.90 on Friday, recovering from the lows of 3.81% after the New homes sales data. The ten-year yields closed with a weekly loss of around 0.75%. The US Dollar Index at 101.71 ended the week down by 0.83%.

The Fed’s preferred inflation measure, the core PCE deflator, rose 0.1% month over month and 3.2% year over year in November, both below expectations. The core PCE has increased just 1.9% over the past six months. Overall, PCE prices fell 0.1% during the month, the first decline since April 2020, and rose 2.6% year over year, the smallest gain since February 2021.

Consumer spending increased 0.2% month over month, trailing personal income’s 0.4% increase and lifting the savings rate slightly. The durable goods data also came in fairly strong in November. Overall orders for durables leaped 5.4% in November, due almost entirely to an 80% gain in nondefense aircraft orders.

Another key release was the Michigan Final consumer sentiment, which saw a rise to 69.7 from 69.4 preliminary and 61.3 last month. For the year, the high reached 71.6 in July, before moving down to 61.3 in November. Rates moving lower and sharply lower oil prices have put the consumer in better spirits to end the year. This gives us quite a notion that inflation is getting under control and macro-economic data are aligning to policymakers’ comfort of pulling the interest rates down in 2024.

Going into the final week of 2023 and watching the start of 2024, most of the markets are likely to observe thin volume due to the holiday-curtailed week. The US is lined up with tier II data – Weekly initial and continuing unemployment claims, wholesale inventories (Nov), pending home sales (Nov), which will not have much impact on the prices. Media reports of China’s state-owned banks to cut interest rates have given some support to commodities and we expect the momentum of rate cuts from the largest commodity consumer will keep overall sentiments positive for the markets.
Gold is expected to remain positive for the week, supported by the notion of rate cuts by the US Fed, geopolitical risk in the Middle East and Red Sea, and visible recovery in economic activities in China.Spot Gold support is at $2020/$1985. Resistance is at $2100/$2125.

(The author is a Research Analyst at Sharekhan by BNP Paribas)

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