By Jigar Trivedi
Comex gold steadied around $1,780 an ounce, but ends the week lower as the US Federal Reserve offered a more hawkish outlook on its policy than markets anticipated. On Tuesday, the Fed delivered a smaller half percentage point rate hike, though it projected a terminal rate of 5.1% next year, higher than previously indicated. The European Central Bank followed suit on Thursday, raising its policy rate by 50 basis points and signaling more increases in an effort to bring inflation down to sustainable levels. Monetary authorities in the UK. Switzerland, Norway and Philippines tightened policy further this week as well. While gold is considered as a hedge against inflation and economic uncertainty, higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal.
US Manufacturing output falls more than expected
Manufacturing production in the United States fell 0.6% from a month earlier in November of 2022, after a 0.3% increase in October and worse than market expectations of a 0.1% decrease. The indexes for durable and nondurable manufacturing both declined 0.6%, and the index for other manufacturing (publishing and logging) slipped 0.4%. Within durables, increases were recorded by wood products, by computer and electronic products, and by aerospace and miscellaneous transportation equipment; these gains were outweighed by losses for other industries, particularly for motor vehicles and parts. Within non-durables, most industries registered decreases, with only printing and support posting an increase.
US Industrial output sees surprise fall
Industrial production in the US decreased by 0.2% MoM in November of 2022, following a 0.1% decrease in October and missing market expectations of a 0.1% gain as higher interest rates and prices weighed on demand. Manufacturing output dropped 0.6%, more than expectations for a 0.1% decrease. The indexes for durable and nondurable manufacturing both declined 0.6%, and the index for other manufacturing (publishing and logging) slipped 0.4%. Meanwhile, mining was down 0.7% while utilities rose 3.6%, after three months of declines. Capacity utilization moved down 0.2 percentage point in November to 79.7%, a rate that is 0.1 percentage point above its long-run (1972–2021) average.
The MCX Gold has advanced by 12.4% YTD due to the weakness in the rupee (11.2%) but the Comex gold has lost by 2.8% amid broader dollar strength. We are in the last month of 2022 and the outlook for coming week is range bound. We expect the yellow metal to drop to Rs. 53,000 per 10 gram and upside is capped around Rs. 54,800 per 10 gram. From an economic data point of view, although next week is holiday shortened yet, will be full of data releases. US will release consumer confidence, existing home sales, GDP for Q3, PCE core index, durable goods orders and new home sales. Amid X-mas celebrations onve next weekend, we may experience thinly trading sessions nonetheless, the yellow metal may drop owing to profit booking.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views are author’s own.)