- Rising tensions around the Russian-Ukraine war support the US Dollar in risk-off mood.
- United States trading week opens with February PMI releases on both sides of the pond.
- Gold price traders will scrutinize last Federal Reserve meeting minutes looking for more monetary policy clues.
- PCE disinflation should continue, but any surprise could have a notable impact on Gold.
Gold price is trading once again on the wrong foot on Tuesday, as it trades close to thick support at $1,830-$1,835, the area of the 38.2% Fibonacci retracement of the November’22-January’23 uptrend. The US Dollar market dominance is rising again on the back of growing geopolitical tensions ahead of the one-year anniversary of the Russian invasion of Ukraine and a day after US President Joe Biden made a significant appearance in Kyiv.
Russian President Vladimir Putin’s speech on the state of the nation on a busy Tuesday European session could have a significant impact on the market risk sentiment and, therefore, on Gold price. Western countries led by the United States preparing new sanctions to Russia could also weigh on the yellow metal.
Gold news: German Manufacturing PMI in the red, Gold price continues downtrend
European trading session has seen the publication of the European S&P Global Purchasing Managers Indexes (PMI) preliminary reports for the month of February. The all-important German Manufacturing PMI came out in the red at 46.5 (vs 47.8 expected), showing that the economic engine of Europe is still weary of high energy prices and inflation as the Russian-Ukraine war continues. Even if the Services and Composite PMIs both for the German and the whole Eurozone economy came out better than expected, Gold price was sold on the release, as US Dollar stays bid across the board.
Markit Economics will also publish the February preliminary releases for the United States S&P Global PMIs in all sectors, expected to come in contraction territory (below 50) across the board, but picking a bit of strength compared to January.
If the S&P Global Services PMI show that rising wages continue to ramp up input price pressures, the US Dollar is likely to preserve its strength and limit the Gold price potential recovery gains. On the other hand, lower-than-expected headline PMI prints combined with a decline in the private sector’s payrolls could weigh on the USD and help XAU/USD edge higher.
Small details in the FOMC Minutes can be market-moving
The Federal Reserve (Fed) will publish the minutes of its last policy meeting on Wednesday at 19:00 GMT, with the whole Federal Open Market Committee (FOMC) assessing the monetary policy. It will be key to see whether some policymakers saw the need for the Fed to reconsider 50 bps rate hikes in case they saw enough evidence to suggest that the slowdown in inflation was temporary. Such a development could revive bets for a 50 bps hike at the next meeting and weigh heavily on Gold price.
If not, markets are unlikely to read too much into the FOMC Minutes ahead of the Fed March meeting, where the revised Summary of Projections will be unveiled.
US PCE disinflation trend to continue
The US Bureau of Economic Analysis (BEA) will publish on Friday at 13:30 GMT the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation. Gold traders and investors will watch the data release closely, as Core PCE inflation is forecast to rise by 0.4% on a monthly basis. Still, the annual figure is expected to decline to 4.1% in January from 4.4% in December. The market reaction should be straightforward, with a softer-than-expected monthly PCE inflation weighing on the US Dollar and vice versa, with Gold price reacting the opposite way.
Considering that the CPI report already revealed that inflation remained sticky in January, it would be surprising to see this data have a long-lasting impact on markets.
Gold price demand grows in China and India, Commerzbank says
The decline in Gold price since during February has triggered a pick up in demand from big consumers in China and India, according to analysts at Commerzbank:
Price slide seems to have pushed up Gold demand in India and China last week. The higher demand is meeting with reduced supply after Fold imports were postponed in anticipation of a possible cut in import tax that did not then materialise.
“Jewellery retailers there are replenishing their stocks following the New Year festivities. This reveals yet again how price sensitive Gold buyers are in India and China. Though this does not mean that they are able to drive prices significantly up, they can preclude or at least slow any further price fall.
Gold price: US Treasury bonds, the US Dollar and inflation dynamics
Gold is a non-yielding asset – holding it does not provide regular revenue – so it usually remains negatively correlated with United States Treasury bond yields. The benchmark US 10-year bond yield was constantly on the rise for most of 2022 as a response to the Federal Reserve raising interest rates to combat skyrocketing inflation.
Price pressures remain high early in 2023, but Consumer Price Index (CPI) readings in the US and other big economies have shown signs of slowing down, and economists project this disinflation trend to continue through the rest of the year. A prolongation of this trend should help Gold price regain some footing from the demand side.
Treasury yields are not the only asset to track for Gold price (XAU/USD). The yellow metal is primarily traded in US Dollar terms, which makes it really vulnerable to currency market action. When the USD rallies against other major currencies and becomes the go-to asset, like it has been doing for the most part of the last year, Gold price tends to trend down as well. Of course, US Treasury yields and the US Dollar are highly correlated, so these dynamics are intertwined.
Gold price in 2023: Up-and-down action
Financial markets have been a two-tale story for the early part of 2023, in which Gold price has reflected in its price action like no other asset. XAU/USD rode an uptrend during all of January with the market optimism about inflation slowing down and constant Federal Reserve dovish talk, only to see a drastic turnaround back to the old dynamics in February after a hot US Nonfarm Payrolls (NFP) report. The US economy adding more than 500K jobs in the month of January shifted the market expectations for the Fed easing its monetary policy, and the US Dollar has come back to the market King throne.
Gold price opened the year at $1,823.76 and reached a year-to-date high of $1,960 on February 2, right in between the first Federal Reserve meeting of the year and the surprising release of the US jobs report for January. Since then, the ongoing downtrend has been relentless, reaching levels close to the yearly open, around $1,830.
Gold price daily chart
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