By Jigar Trivedi
Gold hovered near the $1,910 per ounce mark on Friday, remaining close to the three-month low of $1,907 touched on June 28th as persistent hawkish rhetoric from the Federal Reserve limited buying activity for non-yielding precious metals. Key PCE price gauges, closely monitored by the Federal Reserve, showed that inflation in the US economy is persistent and strengthened the central bank’s case for a 25 bps rate hike in its upcoming July meeting.
Dollar heads for a second weekly advance
The dollar index was slightly lower around 103 on Friday, as investors digested slowing PCE inflation. Most traders still bet the Fed will deliver a 25 bps increase in the fed funds rate in July, although the chances fell slightly to 87% from 89% before the PCE release. Also, the odds for another quarter-point hike in September eased to 21% from 25%. The dollar index gained nearly 0.5% in the second quarter.
The yield on the US 10-year Treasury note fell back below 3.85% on Friday, down from an over three-month high of 3.892 touched earlier in the session, after data showing a slowdown in PCE inflation offered fresh evidence of easing price pressures due to the Federal Reserve’s aggressive policy tightening.
US GDP revised sharply higher
The US economy grew by an annualized 2% in the quarter in Q1 2023, well above 1.3% in the second estimate, and forecasts of 1.4%. Consumer spending growth accelerated more than expected to 4.2%, the strongest in nearly two years despite stubbornly high inflation.
US Weekly Initial Jobless Claims fall the most since-2021
The number of Americans filing for unemployment benefits fell by 26,000 from the prior week’s 20-month high to 239,000 on the week ending June 24th, the sharpest drop since October 2021 and below market estimates of 265,000. The results somewhat extended the period of labor-market resilience to higher borrowing costs from the Federal Reserve, easing recent concerns of a marked softening.
Outlook is bearish
Next week is a holiday shortened week in the US amid Independence Day. But a couple of important economic releases are also due, like, ISM manufacturing PMI and non farm payrolls for June will be releasing in the week. The Fed will also release minutes of the last meeting. Hence the dollar index and the markets will be volatile. MCX Gold August futures may drop to Rs. 57,000 per 10 gram and Comex Gold price may drop to $1,880 an ounce.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)