Gold registered small weekly gains but struggled to make a decisive move
Following the previous week’s sharp decline, gold managed to stage a rebound during the first half of the week with the dollar struggling to find demand. Rising US Treasury bond yields capped gold upside on Thursday and the upbeat January jobs report from the US didn't allow the pair to gather bullish momentum. Gold is likely to remain inversely correlated with the benchmark 10-year US T-bond yield next week as investors will await the US January Consumer Price Index (CPI) data, which could impact the market odds of a 50 basis points (bps) Fed rate hike in March.
- Dollar shook off the bearish pressure after January jobs report.
- Next week's US CPI data could trigger a big reaction in XAU/USD.
What happened last week
The positive shift witnessed in market sentiment made it difficult for the greenback to find demand on Monday. Reflecting the improving mood, the S&P 500 Index rose nearly 2% on Monday. Moreover, several FOMC policymakers voiced their support for a 25- bps rate increase in March while noting a bigger hike was unlikely.
On Tuesday, the data from the US showed that the economic activity in the manufacturing sector continued to expand at a robust pace in January. The dollar stayed on the back foot with Wall Street’s main indexes continuing to push higher and gold climbing above $1,800. The BOE hiked its policy rate by 25 bps to 0.5% following the February policy meeting. The policy statement revealed that four members of the Monetary Policy Committee voted for a 50-bps rate hike.
On Friday, the US Bureau of Labor Statistics (BLS) announced that Nonfarm Payrolls increased by 467,000 in January, surpassing the market expectation of 150,000. The US Dollar Index edged higher after the data and the 10-year US T-bond yield rose to 1.9%, causing gold to return to the $1,800 area.
This week
There won’t be any high-tier data releases in the first half of next week. The inverse correlation with US Treasury bond yields is likely to continue to impact the precious metal’s valuation. With major central banks turning more hawkish than anticipated to battle inflation, global bond yields are likely to continue to edge higher. On Thursday, the US Bureau of Labor Statistics will release the January Consumer Price Index (CPI) data. On a yearly basis, the CPI is forecast to rise to 7.2% from 7% in December. A stronger-than-expected reading could ramp up the probability of a 50-bps hike in March, which currently stands at 25% according to the CME Group Fed Watch Tool – and weigh on gold.
Ahead of the weekend, the Fed will submit its semi-annual Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs. Market participants will look for fresh clues on the rate outlook and the timing of balance sheet reduction.
Short Term Outlook
A break of $1,805 opens risk towards $1,825 while a move lower will target $1,799 and then $1,774.
