Gold touches three-day high amid inflation concerns

Gold touched $2015 per ounce earlier on Friday, supported by the softer US dollar and rising US Treasury yields in the face of ongoing inflationary signals. The price of an ounce of the precious metal is $2012.51 at the time of writing.

US PPI and Core PPI beat estimates, suggesting persistent inflation and making the Fed’s mission more difficult. Fed officials’ hints about potential rate cuts affect market sentiment and make gold a more appealing hedge against current policy uncertainty.

The US dollar declined even while US Treasury yields increased, and the gold price continued to rise for two days in a row, reaching a three-day high at $15,000. US economic data indicates that inflation is more persistent, despite policymakers at the Fed having eased off on restrictions.

The US data shows that inflation is persistent, and Fed officials indicate that patience is needed. Prices paid by manufacturers increased beyond projections, according to US Department of Labour data, suggesting that the US Fed still needs to take action to reduce inflation.

January’s Producer Price Index (PPI) was 0.9%, which was higher than forecast but less than December’s 1%. Core PPI increased by 2%, above both the expectation and the figures from the prior month.

At the same time, US housing data witnessed Housing Starts plummeting -14.8%, from 1.562M to 1.331M, while Building Permits slumped -1.5%.

Meanwhile, the first Consumer Sentiment poll by the University of Michigan noted that Americans remain optimistic about economic conditions. The index improved from 79.0 to 79.6, while inflation expectations for one year edged up to 3%, while for a five-year period, it stood unchanged at 2.9%.

The 10-year benchmark note rate on US Treasury bonds increased six basis points to 4.29%, but this did not keep the dollar stable. Despite this, the non-yielding meal continued to push upward.

Fed officials, led by Fed President Mary Daly of San Francisco and Fed President Raphael Bostic of Atlanta, were intercepted in the meanwhile. Bostic warned that patience is needed and that there may be two rate drops in the near future, starting in the summer if the data support it.
Daly commented there’s work to do, adding “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”

Both Bostic and Daly acknowledged that inflation has a downward trend but remain cautious about the timeline of beginning to ease policy.

The price of gold would remain unstable in relation to the US economic outlook given the underlying conditions. The yield on US Treasury bonds may rise as inflation increases. Thus, more declines in the Gold Index are anticipated.

On the other hand, rate cuts may become possible if inflation keeps heading towards the Fed’s 2% target, which would weaken the dollar’s allure. In other words, the upside of the Gold Index is estimated.

Gold’s Technical Outlook:

Gold price is expected to end the week with losses, despite some recovery. Gold’s daily moving averages show upward bias, but it has been experiencing lower highs and lows since reaching $2088 on December 28.

If the Gold Index closes below $2000, it could lead to a leg-down to the 100-DMA at $1996.10 and the December 13 low of $1973.13. A breach of the latter exposes the 200-DMA at $1965.46.