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Gold bulls look forward to upcoming US CPI inflation data – investxyon
Thursday, February 22, 2024
Home Commodities Gold bulls look forward to upcoming US CPI inflation data

Gold bulls look forward to upcoming US CPI inflation data

by xyonent
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Spot gold fell 0.48% to close at $2,025 on Friday as U.S. yields jumped 0.47% to close at 4.177%. Spot gold fell nearly 0.70% this week. The yield on the 10-year U.S. Treasury note rose about 3.70% on a weekly basis, but the yield on Friday settled at 4.48%, pushing the yield on the 2-year note up about 2% on a weekly basis. The U.S. dollar index is up nearly 3% from its cyclical lows and rose 0.12% this week to close at 104.08. The index failed to take full advantage of the spike in US yields as risk appetite remained healthy.

Despite last week’s data-poor results, major themes have emerged that are likely to impact gold prices in the near term. There is a growing recognition that most US Federal Reserve officials are in no hurry to cut interest rates anytime soon, due to the resilient US economy and the hawkish stance of Federal Reserve officials. They want widespread inflationary pressures to subside further before they have enough confidence to cut rates this year. This means that a rate cut in March is virtually impossible, and is consistent with Fed Chairman Jerome Powell’s statement after the FOMC.

Richmond Fed President Barkin, who has a vote on this year’s FOMC, said regional financial institutions’ problems with commercial real estate (CRE) alone are not enough for the Fed to cut rates early, adding that CRE is currently a known problem. Therefore, he stated. He expects the banking system to have enough capital to weather the risks. His view is in line with that expressed by Fed Chair Jerome Powell in a Feb. 4 interview with CBS’ “Sixty Minutes,” that commercial real estate risks are primarily concentrated in small banks. He said that it is manageable. This stance from key Fed officials further dampens hopes for early and aggressive rate cuts this year, putting pressure on U.S. Treasuries and bearing on gold.

As expectations for a March interest rate cut fade, the swap market is keeping an eye on the Fed’s May 1 decision.

In a major relief for Federal Reserve officials, new data released Friday shows that the U.S. Bureau of Labor Statistics’ annual revision of monthly CPI data shows that the inflation rate at the end of last year was originally It was revealed that the results were almost the same as the report. . A review of CPI data is done to remove seasonal factors such as holiday and harvest effects to facilitate meaningful comparisons across months of the same year.

Meanwhile, geopolitical tensions continue to rise in the Middle East as Israel, which has rejected Hamas’s peace proposal for a long-term ceasefire, begins bombing the city of Rafah in the southern Gaza Strip. war. The United Nations has warned that an escalation of attacks on Rafah risks worsening the “humanitarian nightmare”. US President Joe Biden criticized Israel’s military operations, calling them “excessive.” Secretary of State Antony Blinken emphasized the fact that “there are a lot of innocent people who are suffering and dying.” US Secretary of State Antony Blinken has completed his fifth tour of the region since the start of the war. The total known global holdings of gold ETFs increased for the first time. After 15 consecutive days of decline, it now stands at 83,651,000 ounces. Of note, gold has been above $2,000 since mid-December.

The main focus next week will be the US CPI inflation rate, which will be released on February 13th. Year-on-year CPI inflation is expected to fall to 2.9% last month from 3.4% in December, which would be the lowest level since early 2021. Other major U.S. data releases include import price index, industrial production and retail sales growth for January. Additionally, the February Fed Economic Outlook in Philadelphia, NAHB Housing Index, University of Michigan sentiment, and inflation expectations will also be important data sets to watch.

From Europe, the UK’s December employment statistics, January CPI inflation rate data, preliminary fourth quarter GDP figures, and January retail sales data will be announced. In the euro area and Germany, ZEW survey forecasts (February) and preliminary GDP figures for the fourth quarter will be announced. The Eurozone’s fourth quarter employment, December industrial production, and trade balance (December) are scheduled to be announced. Furthermore, Japan’s fourth quarter (preliminary) GDP and PPI (January) will also attract investors’ attention.

Bond weakness, healthy risk appetite, diminished chances of early deep rate cuts, a resilient US economy, a hawkish Federal Reserve, and moderately subdued geopolitical issues are further bearish factors for the yellow metal. It becomes. Investors are closely watching the upcoming release of U.S. consumer price index (CPI) inflation data for clues that the Federal Reserve may cut interest rates. If the CPI data is significantly off, gold will rise on expectations of a rate cut. But a small mistake may not help much, as Federal Reserve officials have made clear they want the inflation trend to widen and can afford to be patient.

Atlanta Fed President Rafael Bostic said Friday that policymakers must ensure that inflation returns to the central bank’s 2% target. He stressed the need to “stay the course.” His comments succinctly summarize the Fed’s current stance.

Gold will be vulnerable if US CPI inflation data fails to provide clarity or relief.

Support is $2015/$2000/$1980. Resistance levels are $2050/$2065.

(The author is Vice President, Basic Currencies and Products, Sharekan, BNP Paribas)

(Disclaimer: Recommendations, suggestions, views and opinions by experts are their own. They do not represent the views of Economic Times)

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