By Jigar Trivedi
Comex gold dropped to its lowest level in about two months in the week gone by as weekly jobless claims favored the case for rate hike by the US Federal Reserve to control the sticky inflationary scenario. MCX Gold April for the second straight week has dropped below 1% amid broader weakness in the bullion segment on the international front. The US dollar for the fourth week has experienced a positive undertone on the back of the positive incoming economic data from the US and hawkish Fed comments.
Participants noted that recent inflation data showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path.
The Fed raised the target range for the fed funds rate by 25bps to 4.5%-4.75% in its February 2023 meeting, dialing back the size of the increase for a second straight meeting but still pushing borrowing costs to the highest since 2007.
US economic activity rebounds in January
The Chicago Fed National Activity Index rose to +0.23 in January 2023 from a downwardly revised -0.46 in December, indicating an upturn in US economic activity. It follows three consecutive months of contraction and marks the highest reading since last July.
US jobless claims unexpectedly fall
The number of Americans filing for unemployment benefits fell by 3,000 to 192,000 in the week ending February 18th, below market expectations of 200,000. The latest value remained close to the nine-month low of 183,000 hit at the end of January, giving further evidence that the US labor market remains tight in part to reduced labor force participation.
Dollar stays near 7-Week high
The dollar index was little changed at 104.6 on Friday, remaining near its highest level in seven weeks while pointing to the fourth straight week of gains, amid a resilient US economy that supported the case for further monetary tightening from the Federal Reserve. St. Louis Fed President James Bullard said recently the central bank still needs a “sharp” tightening to tame high inflation.
Outlook
From an economic data point of view, this week, gold is likely to witness more volatility. On Monday, the US will release core durable goods orders for January. On Tuesday, India will release Q3 Y-o-Y GDP numbers. US will release goods trade balance for January and S&P Housing Price Index for December. Even Consumer Confidence for February will also get released on the same day. On Wednesday countries like the UK, the EU, Germany & the US will release manufacturing PMI for February. Looking at the technical chart, on the Comex front, $1,820-1,825 an ounce is a huge support level. If bears manage to pull the yellow metal below the same, we may see further weakness till $1,800 – 1,770 an ounce. However, in the reverse scenario, $1,860 is a strong resistance. We recommend to short on every bounce.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views are author’s own. Please consult your financial advisor before investing.)