Gold prices dipped to $2664 following the release of the US nonfarm payroll report as the US yields and the Dollar Index surged on robust job data. However, the metal recovered quickly as the US yields and the Dollar Index eased slightly from their respective day’s highs. The metal traded between $2614 (January 6) and $2698 (January 10) during the week. It closed with a gain of 0.75 per cent at $2690 on Friday and was up around 2 per cent on the week.
Data roundup
The US nonfarm payroll report (December) turned out to be better-than-expected on crucial counts as change in nonfarm payrolls at 256K topped the estimate of 165K and unemployment rate dipped to 4.2 per cent Vs the forecast of a steady reading of 4.20 per cent. Average hourly earnings m-o-m came in at 0.3 per cent(forecast 0.3 per cent), while earnings rose 3.9 per cent on Y-o-Y basis– slightly lower than the forecast of 4 per cent.
The two-month net revision stood at -8K as labour force participation rate was steady at 62.5 per cent(forecast 62.5 per cent). University of Michigan sentiment (January preliminary) edged lower to 73.2 (forecast 74) from 74 in December. Both one-year and 5–10-year inflation expectations came in at 3.3 per cent Vs the respective forecasts of 2.8 per cent and 3 per cent.
Earlier in the week, the US data showed that JOLTs job openings (November) at 8,098K topped the estimate of 7,740K. Even, ISM Services Index (December) rose sharply higher from 51.10 in November to 54.10 (estimate 53.50). ISM Services prices paid at 64.40 were much hotter than the forecast of 57.50.
Upcoming data
Major US data on the deck next week include US PPI (December), CPI (December), Philadelphia business outlook (January), retail sales advance (December), housing starts (December) and industrial production (December). Out of China, focus will be on trade balance (December), 4Q GDP, industrial production (December), retail sales (December) and property investment YTD y-o-y (December). CPI (December) of Germany, the UK and Euro-zone along with the UK monthly GDP and retail sales (both December) will also garner traders’ interests.
ETF
Total known global gold ETF holdings as on January 9 stood at 82.874MOz, slightly higher than 82.845MOz level seen at the end of the last week.
US yields and the Dollar Index
Fed rate cut expectations have shifted to the second half of the year as the 30-year yields rose above 5 per cent for the first time in more than a year. The ten-year yields leapt to the new cycle high of 4.80 per cent before easing slightly. Similarly, the 30-year yields fell to 4.95 per cent, up nearly 3 per cent on the week, after touching 5 per cent. The US Dollar Index rose to a new cycle high of 109.96 — highest level in more than two years. The Index closed with a gain of 0.45 per cent at 109.66 on Friday and was up roughly 0.70 per cent on the week. The 10-year yields at 4.76 per cent were up 1.55 per cent on the day as they rose nearly 3.50 per cent on the week.
China reiterates proactive fiscal policy
China’s Vice Finance minister Liao Min said on Friday that the nation has ample fiscal policy room and tools to deal with new domestic and external problems. He reiterated that the 2025 deficit-to-GDP ratio will rise, though details are likely to be announced after due legal process.
UK’s woes supportive
UK assets are tumbling on borrowing concerns, anaemic growth amid sticky inflation that are being worsened by the incoming US President Trump’s tariff plans. The 30-year UK yields have risen to the highest level in 30 years.
Fedspeak
The US Fed Governor Waller said on Wednesday that he sees US inflation trending lower to the Fed’s goal of 2 per cent. He added that he expects more rate cuts and tariffs may not be much inflationary. His comments helped commodities in general.
Outlook
Although ostensible reasons behind gold’s surge on Friday are inflation worries, and tariff and inflation concerns, the spike is largely about a slight decline in the Dollar Index and the US yields from their respective day’s highs. Although these concerns along with the UK’s woes are supportive, gold may find it difficult to rise much from the current levels on the strong US job report and headwinds of strong Dollar and high yields. Gold is a poor inflation hedge as such.
The metal is likely to slide lower in ultra short-term unless the upcoming US CPI data turn out to be softer-than-expected.
The metal may test support at $2650 before it tests resistance at $2750. Traders are expected to sell into rallies with a tight stop loss above $2730/$2750.
