By Jigar Trivedi
Comex Gold steadied around $1,970 an ounce on Friday and appreciated for the third consecutive week, as easing US inflation raised hopes that the Federal Reserve is close to the end of its current monetary policy tightening cycle. Still, the US central bank is widely expected to raise interest rates by 25 basis points this month, while traders scaled back bets of further rate increases this year. Investors also look ahead to interest rate decisions from the ECB and the BoJ next week. Elsewhere, softer-than-expected UK inflation lowered bets on further rate hikes from the BoE. Meanwhile, the People’s Bank of China kept its one and five-year loan prime rates unchanged at its July fixing, defying expectations that Chinese authorities would ease policy further to spur growth.
US manufacturing output unexpectedly falls
Manufacturing production in the US went down 0.3% on-month in June 2023, following a 0.2% decline in May and compared with market expectations of a flat reading. The indexes for nondurable and durable fell 0.6% and 0.1%, respectively; the index for other manufacturing edged down 0.2%. Within nondurables, only chemicals recorded an increase, whereas decreases of at least 1% were recorded by most other industries. Notable declines occurred in the indexes for printing and support (2.5%) and petroleum and coal products (1.6%).
US Treasury Yields Edge Lower
The yield on the US 10-year Treasury note was around 3.78%, close to low levels not seen since late June, as traders weigh the economic and monetary policy outlook. Bets for a 25bps hike in the fed funds rate next week currently stand at 96% but investors remain divided on the need of further increases, although several officials including Chair Powell and Governor Waller have been advocating for another increase in borrowing costs beyond July. Investors also look ahead to interest rate decisions from the European Central Bank and the Bank of Japan next week.
Outlook: Positive
From a data point of view, the week is going to be an important one. Major focus for the week will be on Wednesday and Thursday. On Wednesday the US Fed will release monetary policy and ECB will release its policy a day after. Hence the mood on the street is likely to be muted on Monday and Tuesday however, the second half of the week is likely to be volatile.
The Fed and the ECB is expected to increase the interest rates by 25 bps however, the future stance is uncertain, hence the statements will be very much critical. Other than this, on Monday, the US will release manufacturing PMI for July ( provisional data), Tuesday Consumer Confidence for July and Housing Price Index for May. On Thursday, the US will release Q2 GDP, weekly jobless claims. Friday the US will release the Core PCE price index for June. We expect the gold rate to appreciate to Rs. 60,500 / 10 gram. Comex gold price may appreciate to $ 2,020 an ounce.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities at Reliance Securities Limited. Views expressed are the author’s own.)