Friday, 20 January 2023 / Published in Commodity Insights

The price of the yellow metal broke above the $1,930/oz level on Friday morning for the first time since end-April 2022, driven by some safe-haven demand, a softer dollar and yields, and weaker-than-expected U.S. macroeconomic data.

Investors have been moving some funds into the safety of Gold in recent weeks on the prospect of a global economic slowdown, as record-high inflation, energy crunch, and soaring interest rates could hit hard economic activity, and consumer confidence.

Gold is heading for a fifth straight week of gains allowing it to add almost $300/oz, or up nearly 20% off November’s low of $1,620/oz, rallying in tandem with a sharp drop in the U.S. dollar for the same period over the path of Fed’s monetary policy.

The prospect of smaller rate hikes by the Federal Reserve has pulled out steam from the hawkish Fed-led 2022’s greenback rally, letting the dollar-denominated gold recover toward the $2,000 key psychological level.

DXY, Daily chart

DXY-U.S. dollar index which tracks the value of the greenback against six major currencies, hit a fresh seven-month low of 101.57 on Wednesday, while the yields on the 10-year U.S. bond fell to nearly 3,35%, on hopes of less-aggressive U.S. rate hikes by the Federal Reserve.

Economists expect the Federal Reserve to hike its benchmark borrowing rate by 0.50 percentage points on February 1st; a 0.25 increase will demonstrate a slowing from what has been a blistering pace in 2022, possibly hinting to no more raises or even cuts by year end. The Fed hiked the rate by 0.75 percentage point four straight times last year before approving a 0.5 percentage point move in December.

The yellow metal also gained some traction after a series of weaker-than-expected corporate earnings and U.S. macroeconomic data this week, such as retail sales, and the PPI-Producing Price Index, which drove up the expectations for a lower U.S. inflation reading ahead, and an eventual pivot in the Federal Reserve’s hawkish rhetoric.