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Fed's Plans to Slow Interest Rate Hikes, A Good News For Gold
Fed's Plans to Slow Interest Rate Hikes, A Good News For Gold
Thursday, 26 January 2023

Price Performance Indicators

Product 

Price

% change

GOLDUD

1927.19

0.62%

GOLDGR

946300

1.30%

XAUUSD

1926.06

0.52%

COMEX

1926.4

1.01%

USD/IDR

15069

0.20%

Gold focus :

  1. The ICDX gold price strengthened 0.62% in the week (16/01 - 20/01).
  2. US economic data and expectations of interest rate hikes are smaller.

Market Review

The ICDX gold price strengthened by 0.62% compared to the previous week with the driving factor of the dollar index which weakened by -0.55% following the release of various US economic data amid expectations of a slowdown in The Fed's interest rate hike.

The Fed's aggressive strategy in fighting inflation by raising its benchmark interest rate had an impact on US economic activity which showed signs of weakening demand. From the manufacturing sector, the Federal Reserve Bank of New York released the Empire State Manufacturing Index deep contracted to the level of -32.9 from the previous data -11.2. Federal Reserve Bank of Philadelphia reported the Philly Fed Manufacturing Index at -8.9 indicating contraction below indicator figures. US Retail Sales by Census Bureau also reported a decrease at -1.1 compared to the previous report -1.0%.

On the other hand, readings of US economic data are interpreted as signs of sloping inflation. Survey by the University of Michigan showing US consumer expectations of a significant reduction in price pressures in the next 12 months is shown from the data US Prelim UoM Inflation Expectations at the level of 4.0%, sloping from the previous data of 4.4%. Us Producer Price Index  reported at -0.5%, down from 0.2% previously.

Expectations of easing in price pressures have sparked hopes that the US central bank will adopt a policy decision to increase its benchmark interest rate smaller than before. Fed Vice Chair Lael Brainard sees a soft landing for the US economy where inflation is flat without major job losses over the past few months by noting significant weakness in the manufacturing sector. Boston Fed President Susan Collins said it was appropriate to slow the pace of rate hikes to just above 5% and then hold them there for a period of time.

Market View

Continuation of The Fed's Interest Rate Policy

Gold is sensitive to policies related to increasing interest rates adopted by the US central bank to soften inflation because it affects the performance of the US dollar index. Federal Open Market Committee (FOMC) last December minutes of meeting showed US central bank policy makers agreeing on the need to slow the pace of aggressive rate hikes but was not an indication of a weakening of committee members' resolve to achieve price stability. The Fed's policy at the next FOMC meeting scheduled for January 31 - February 1 is currently the focus of market players. Several Fed officials voiced the possibility of a hike of 25 basis points, which is a lower increase compared to previous meetings. Expectations of a slowdown in the rate of increase in The Fed's interest rate have the potential to become a catalyst for the further movement of gold.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date

Data / Events

Actual

Expectation

Previous

23-Januari

USD - CB Leading Index m/m

-1.00%

-0.7%

-1.1%

24-Januari

USD - Flash Services PMI

46.60

45.30

44.70

24-Januari

USD - Flash Manufacturing PMI

46.8

46.0

46.2

24-Januari

USD - Richmond Manufacturing Index

-11.00

-5.00

1.00

26-Januari

USD - Advance GDP q/q

-

2.6%

3.2%

26-Januari

USD - Advance GDP Price Index q/q

-

3.2%

4.4%

26-Januari

USD - Core Durable Goods Orders m/m

-

-0.2%

0.1%

26-Januari

USD - Durable Goods Orders m/m

-

2.4%

-2.1%

26-Januari

USD - Unemployment Claims

-

203K

190K

26-Januari

USD - New Home Sales

-

610K

640K

27-Januari

USD - Core PCE Price Index m/m

-

0.30%

0.20%

27-Januari

USD - Pending Home Sales m/m

-

-1.0%

-4.0%

27-Januari

USD - Revised UoM Consumer Sentiment

-

64.6

64.6

Source: ICDX Research

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