Gold almost flat, USD strong on concerns of higher inflation and higher interest rates
- Gold undermined by a higher US dollar index.
- Powell optimism about higher US inflation may be positive for Gold.
Gold is now trading around $1318 in the New York session, almost unchanged (-0.05%) on a higher USD, amid concerns of higher US inflation and raising interest rates. After Tuesday’s Powell optimism, the USD drifted lower on early Wednesday Asian session amid BOJ “mini-tapering” after BOJ cut its 25-40Y JGB purchase by a peanut (10 bln Yen).
As a result of this “stealth tapering” by the BOJ, USDJPY tumbled from Tuesday’s Powell shocker high of around 107.67 to a low of 106.87 till now despite the new Fed chair sounded more optimistic about inflation in his testimonial Q&A session than the initial prepared statement. In his Q&A session before the US Congress, Powell said that he sees some “high prices” (inflation) and that he has strengthened his personal outlook for the economy since December’17.
Apart from this BOJ “back-door” tapering, the USD was also under modest pressure against the Yen after BOJ´s Governor Kuroda said that the BOJ won’t continue its current powerful monetary easing once inflation hits its 2% target in a stable manner, even if the government puts pressure on the central bank to keep interest rates low.
The USD is also under stress on Wednesday NY session against safe-haven assets, amid subdued US economic data. Although US GDP for Q4 flashed at 2.5% in line with the estimate and private consumption also ticked up, the vital inflation parameter for Fed (core PCE) came muted at 1.90% along with GDP price index at 2.3%, edged down from 2.4%. Also, Chicago PMI, Pending home sales all came subdued.
The market may be now skeptical about Powell version of 4 or even 3 rate hikes in 2018 as US inflation prospect is still looking very weak. But at the same time, although USD is getting weaker against the Yen, it’s getting stronger against the EUR and other commodity currencies on Wednesday and as a result, US dollar index (DXY) is now up by 0.30%, limiting overall Gold price. As a reminder, EUR has around 55% weighting in the DXY.
EUR is under pressure on subdued EZ economic data coupled with the concern of EU politics ahead of result for the German coalition vote (SPD) and the Italian general election, both on March 4th, Sunday.
Technically for Gold, the 1310-1300 area is now the immediate support and sustaining below that, the 1285 zone may be visible soon. For any meaningful recovery, Gold must stay above the 1335-1340 price zone for the 1356-1366 area.
