Gold- Sentiment is bullish, largely data driven next week

Gold: Sentiment is bullish, largely data driven next week

By Jigar TrivediGold gives up some gains after US PPI data

MCX Gold February futures ended the week at Rs 54,295 per 10 gram, registering gains of Rs 445 or 0.83% due to weak rupee. Nonetheless, Comex gold ended flat while market participants await further direction on U.S. rate hikes from the Federal Reserve meeting next week. The Indian rupee finished the week with 1.3% losses and closed at 82.46 per dollar. Comex Gold prices traded above $1,790 an ounce but retreated from session highs on Friday, as the dollar bounced back after fresh PPI data showed producer prices in the US rose more than expected.

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10-year treasury yield rebounds from 3-month low

The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, rebounded to above 3.5% from the three-month low of 3.4% touched on December 7th after the producer price index print surprised to the upside, raising concerns that consumer inflation could refrain from slowing further. Better than expected ISM services data and a strong jobs report for November also extended leeway for the Federal Reserve to continue raising borrowing costs, supporting worries that interest rates will top at a higher level next year. Still, money markets continue to price an 80% chance that the US central bank will hike rates by a slower 50bps in December. On top of that, some sectors of the US economy, including housing and industry, have been flashing recessionary signs. Meanwhile, the gap between 2 and 10-year bond yields widened to over 80bps, the largest since at least 1981.

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Outlook: Data driven

The next big catalyst for the bullion will be the US CPI report on Tuesday while the Fed, the ECB and the BoE will also decide on monetary policy during next week. The three major central banks are expected to deliver smaller rate hikes but attention will turn to terminal rates and any signs on whether policymakers are getting ready to pause or continue tightening. Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and dent its appeal, and vice versa. MCX Gold February futures may travel higher to Rs 54,800 / 55,000 per 10 gram.

(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views are author’s own.)