On Friday (January 29) in the sub-session, the dollar index remained strong, now trading around 90.75; Spot gold continued to be under pressure, trading around $1,842 an ounce. In the short term, gold is mainly pegged to the performance of the U.S. dollar and Treasury yields, and if the dollar continues to strengthen, gold prices may face further downward pressure, analysts said. Investors will get a slew of U.S. economic data on Friday night in Hong Kong, with the Federal Reserve’s favorite inflation gauge, the PCE price index, the most closely watched and expected to have an impact on market movements.
Gold prices staged a rally Thursday. Spot gold closed at $1843.02 / ounce, down $0.81 or 0.04%, the United States intraday, spot gold gains once expanded to 1%, a short-term surge to $1864.05 / ounce, then retreated from the high and closed down.
Gold prices rose in early New York trading on Thursday after some downbeat data on the US economy, but then US Treasury yields rose sharply, putting pressure on the non-interest-bearing asset, MarketWatch reported.
Real U.S. gross domestic product will grow at a negative 3.5 percent pace in 2020, the first negative reading since 2009 and the lowest since 1946, Commerce Department data showed on Thursday. The preliminary estimate of GDP growth for the fourth quarter of 2020 was 4% at an annualized rate, unchanged from the previous estimate of 33.4%.
It was the first negative reading since the economy shrank 2.5 percent in 2009 and the worst annual setback since the economy shrank 11.6 percent in 1946, the Associated Press said.
The dollar has rebounded from a three-year low hit earlier this month and its recent decline has been seen as going too far, too fast. The dollar’s index against a basket of currencies has risen more than 0.50 per cent this month after falling more than 6 per cent last year.
Market analyst Joel Frank noted that gold’s decline was driven by a stronger dollar. The dollar recovered amid a general deterioration in risk appetite.
Peter Spina, president and chief executive officer of GoldSeek.com, said gold was trading against strong U.S. Treasury yields and the dollar.
Commerzbank analyst Daniel Briesemann said the Fed’s meeting on Wednesday had no positive impact on gold prices as the dollar strengthened before and after the meeting as other concerns in financial markets made it seen as a safe-haven currency, which weighed on gold prices.
In addition to the dollar’s rebound, negative developments in the U.S. economic stimulus plan have also put downward pressure on gold prices. President Joe Biden has proposed a $1.9 trillion rescue plan, but the size of the stimulus has drawn opposition from Republicans.
Bob Haberkorn, senior market strategist at RJO Futures, said: “The size of the $1.9 trillion (U.S. stimulus package) is quite large and I don’t think President Biden will have the support to pass it. That’s another reason why gold hasn’t tried to move back above $1,900.”
The House of Representatives will move forward next week on an agenda that would allow Democrats to pass a new bailout bill without Republican support, House Speaker Nancy Pelosi said Thursday.
Pelosi said the House will pass a budget resolution, the first step toward passing legislation. That process would allow Senate Democrats to pass an aid measure without Republican votes. “By the end of this week we will have a budget resolution,” she predicted.
According to Economies.com, gold tried to break above $1,850.80 an ounce on Thursday, but then retreated and is still trading below that level, keeping our bearish view in place for some time to come. The first gold target is at $1820.00 / oz with lower targets at $1800.00 / oz as the outlook for gold continues to be bearish.
Economies.com cautioned that it was important for gold to remain below $1,850.80 an ounce to continue its downward trend. Economies.com expects $1,820.00 and $1,850.00 to provide short-term support and resistance, respectively.
The Fed’s favorite inflation gauge has hit
At 21:30 Hong Kong time on Friday, U.S. personal income and spending for December and the PCE price index, the Fed’s preferred inflation gauge, will be closely watched by investors.
The U.S. personal consumption expenditures price index is expected to rise 1.2 percent on an annual basis in December after rising 1.1 percent, media surveys showed. The core PCE price index is expected to have risen at a 1.3 percent annual rate in December, down from a 1.4 percent rise in the previous month.
The annual rate of the core PCE price index is the Fed’s preferred inflation gauge and has a major influence on interest rate decisions.
The PCE price index was first developed by the U.S. Department of Commerce’s Bureau of Economic Analysis and adopted in 2002 by the Federal Open Market Committee, the Fed’s policy-making body, as a leading measure of inflation.
The Fed said Wednesday after a two-day policy meeting that it would keep its benchmark short-term borrowing rate near zero and maintain its asset purchase program, in which the central bank buys at least $120 billion a month, as expected.
“The pace of recovery in economic activity and employment has slowed in recent months, with weakness concentrated in the sectors most affected by the outbreak,” the Fed wrote in its post-meeting statement. The statement reiterated that the new pandemic “is causing enormous human and economic hardship in the United States and around the world.”
Tai Wong, head of metals derivatives trading at BMO Capital Markets, said: “The market is looking for a more accommodative signal from the Fed and it’s not getting it, so gold can’t rally.”
In addition to the PCE price index, investors will also focus on the final University of Michigan consumer sentiment index for January, due out at 23:00 Hong Kong time on Friday, which is expected to come in at 79.2.
The University of Michigan’s consumer confidence index correlates fairly closely with consumer spending. If consumer confidence comes in stronger than expected, the dollar could rebound and gold could take a hit.