Gold focus :
ICDX gold price strengthened by 0.59% compared to the previous week supported by the depreciation of the dollar index following various United States (US) economic data released which were pessimistic.
The positive movement of gold took advantage on softer dollar index which weakened -0.29% within the week. Gold is traded in dollars so that the weakening of the dollar index supports gold purchase because the greenback becomes more affordable for global market players who hold other currencies. US economic data from various sectors showed contraction amid the US central bank's tightening strategy, The Federal Reserve, to adapt interest rate policy tightening to slow inflation and reduce demand. From the business sector, S&P Global recorded US Flash Services PMI at 44.4 index number, lower than the previous reading of 46.2 and expectations of 46.5. Meanwhile US Manufacturing PMI reported at an index number of 46.2 compared to the previous report 47.7. An index reading below the 50 level indicates a contraction in the service and manufacturing industries.
The housing sector also showed contraction. Census Bureau report US Building Permits at 1.34M, lower than the previous reading of 1.51M and the market forecast of 1.48M.US Housing Starts also decreased slightly to 1,427M compared to the previous report of 1,434M.US Existing Home Sales fromNational Association of Realtors reported a contraction at 4.09M compared to the previous report of 4.43M and prediction at 4.20M. Pessimistic data also came from the reported labor market US Unemployment Claims at 216K, an increase from the previously reported 214K although lower than the projected 221K.
US Core PCE Price Index on a monthly basis up 0.2% last month compared to a 0.3% increase in the previous report, while on a yearly basis core PCE rose 4.7% compared to a 5% increase in the previous data. US PCE data is moving moderately as an indication of the possibility of slow moving household demand thus supporting expectations of reduction in future inflation. Bureau of Economic Analysis released US Personal Spending m/m experienced a slight increase of 0.1% compared to the increase reported in the previous month of 0.9%. Moderation in personal spending was supported by US Personal Income m/m data which increased 0.4% which was also lower than the previous month's increase of 0.7%
The Fed's Interest Rate Projection and Covid-19 Policy in China
The US central bank's monetary policy tightening strategy, The Federal Reserve, is one of the driving factors for gold. Federal Open Market Committee (FOMC) meeting this month resulted in a decision to increase the benchmark interest rate by 50 basis points as well as a projection of an additional 75 basis points in 2023 with the policy target being at the level of 5.1%, the current benchmark interest rate is in the range of 4.25% - 4.50%. Gold is sensitive to interest rate hikes because it dims gold appeal, which is considered less yielding than financial products that generate interest. This aggressive policy also gave strength to the dollar so that gold traded in dollars became more expensive for other currencies holders.
Also becoming the focus of gold movement is Covid-19 situation in China as one of the biggest consumers of gold. On December 18, China reported its first two new deaths caused from Covid-19 since December 3, days before the lifting of restrictions on December 7. Followed by five deaths the following day which brought the total deaths from Covid in China to 5,241 cases. Furthermore, China stopped requiring quarantine for tourists starting January 8 and lowered Covid-19 management to a less strict level, Category B from the previous Category A. The policy taken by the Chinese authorities as a major step in easing restrictions sparked expectations of a recovery in the country's economy and affect global demand for gold.
Data / Events
USD - Bank Holiday
USD - Goods Trade Balance
USD - Prelim Wholesale Inventories m/m
USD - HPI m/m
USD - S&P/CS Composite-20 HPI y/y
USD - Pending Home Sales m/m
USD - Richmond Manufacturing Index
USD - Unemployment Claims
USD - Chicago PMI
Source: ICDX Research