1. Market review: Last Friday, spot gold fluctuated and went down. Affected by the unexpected PCE data, the U.S. market once fell below the 1810 mark, setting a new low for the year, and finally closed down 0.65% to 1810.81 US dollars per ounce; spot silver ranked first in a row It recorded a decline in six weeks, fell below the 21 mark, to the lowest level in three months, and finally closed down 2.46% at $20.77 an ounce.
2. The U.S. PCE annual rate and monthly rate rose again. The U.S. PCE data in January rose by 4.7% year-on-year, exceeding the estimated 4.3% and the previous value of 4.4%; the core PCE rose by 0.6% month-on-month in January, the largest increase since August 2022 . After the data was released, traders fully priced in the Fed’s next three rate hikes, with terminal rate expectations rising to 5.45%.
3. Federal Reserve officials have expressed the need to raise interest rates further After the release of the PCE data, Cleveland Fed President Mester and Dallas Fed President Logan both expressed the need to raise interest rates more than previously expected. St. Louis Fed President Bullard believes that it is necessary to act quickly to protect the credibility of the Fed. U.S. Treasury Secretary Yellen said that U.S. inflation has fallen but has not yet been brought under control, and reiterated that the U.S. economy may achieve a soft landing.
Royal Bank of Canada
Can gold fall below $1,800 in the near future?
Gold investors are increasingly aware that the Fed may be doing more than they previously thought. As we said before, the release of data on employment, inflation, etc. will continue to pull gold, but now that the pressure on gold has increased, we continue to think that gold is prone to price declines in the future. Gold ETF holdings fell further to their lowest level since April 2020 as the safe-haven trade appeared to be non-existent. We expect that the short-term downside of gold is expected to expand, and it may fall below $1,800 in the near future. The market seems to be more concerned about gold-related macroeconomic data and drivers than gold’s hedging and value preservation functions, and we think this phenomenon will continue at least until the first half of this year.
Rising interest rates put pressure on gold prices
Gold faces headwinds on multiple fronts at the same time. First, gold ETFs have seen increased outflows again recently. Gold outflows totaled 14.7 tonnes from Monday to Friday last week, equivalent to nearly 3 tonnes per day. The world’s largest and most liquid gold ETF has also seen outflows again recently. Previously, the fund had seen small net inflows for several weeks, raising hopes that ETF investors were returning to the gold market. The marked increase in rate hike expectations now appears to have dashed market hopes, according to fed funds futures, with the Fed rate expected to peak at around 5.35% in the summer, 50 basis points higher than the market expected in early February. The resulting marked rise in (real) bond yields and the simultaneous appreciation of the dollar are weighing on gold.
Praveen Singh, Base Currency and Commodities Analyst, BNP Paribas
Gold could fall to this position in the next few weeks
Gold has continued to come under downward pressure over the past few weeks as financial markets began to re-price U.S. interest rate risk as inflationary pressures rose and some key economic indicators came in much better than expected. Due to strong personal spending, the US PCE index increased more than expected. The core PCE index in January was 0.60%, an increase of 4.70% year-on-year, both higher than the expected 0.40% and 4.30%. While U.S. fourth-quarter GDP was at an annualized rate of 2.70%, lower than the expected 2.90%, weekly jobless claims fell to a four-week low, while U.S. new home sales and Markit services PMI also came in better than expected. U.S. macroeconomic data (at least in the short term) reflected a better-than-expected U.S. economy amid renewed inflation. This situation does not bode well for gold. Traders are closely watching U.S. ISM services and manufacturing PMI data due this week. Still, geopolitical concerns provided some support for gold prices as the G7 set to impose new sanctions on Russia while North Korea fired missiles. In addition, the escalation of the conflict between Russia and Ukraine may put European currencies on the defensive. The U.S. dollar index is expected to remain firm. In the next few weeks, the price of gold may fall to $1780. A rise in U.S. 10-year Treasury yields above 4% could accelerate losses in commodities, including gold. Gold resistance is seen at $1830-1850.
Ole Hansen, Head of Commodity Strategy, Saxo Bank
The short-term direction of gold around the dollar
The U.S. PCE index, the Fed’s preferred inflation gauge, was closely watched on Friday, with a stronger-than-expected result clearly suggesting that inflation is headed in the wrong direction and that the Fed needs to take further action, possibly raising interest rates by another 50 basis points. Gold is now down nearly $140 after falling below $1,820 last week and rallying more than $340 since early November. Gold prices fell after a run of stronger-than-expected U.S. economic data after a failed test of $1,950 underscored the challenge the Fed faces as it tries to force inflation down to its long-term 2 percent target. And, that led to renewed strength in the U.S. dollar after months of weakness, while bond yields rose, both of which provided fresh headwinds for gold. For now, gold is likely to seek direction from the dollar’s movements and will continue to find a bottom before we see a new round of movements. Market demand for gold remains uneven, but in the short term we expect central bank demand to be sufficient to offset the continued lack of interest in gold from ETF investors. Total holdings in the ETF market continued to decline last week, having shed nearly 50 tonnes since early November when gold prices began a strong rally. Unless the macroeconomic situation becomes friendlier and the dollar reverses, the risk of further weakness in gold towards $1,788 remains, followed by the 200-day moving average at $1,776.