Gold broke below $1,800, snapped a three-week winning streak.
Gold started the new year on the back foot and suffered heavy losses on Monday. Buyers, however, managed to defend the key $1,800 level and gold climbed all the way up to $1,830 mid-week before coming under renewed bearish pressure. The gold fell sharply on surging US Treasury bond yields on Thursday and struggled to stage a convincing rebound despite the disappointing Nonfarm Payrolls data on Friday.
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10-year US Treasury bond yield rose more than 15% this week.
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US CPI inflation data could have an impact on rate hike odds next week.
What happened last week
After losing strength ahead of the New Year holiday, the dollar staged a decisive recovery on the first trading day of 2022 and forced gold to push lower. The US Dollar Index, which tracks the greenback’s performance against a basket of six major currencies, retraced the previous week’s decline in a single day by rising nearly 0.6%. The benchmark 10-year US Treasury bond yield rose nearly 8% at the start of the week and helped the USD find demand while putting additional weight on gold’s shoulders.
On Tuesday, the data published by the ISM revealed that the Prices Paid component of the December Manufacturing PMI report dropped sharply to 68.2 in December from 82.4 in November. With this print eased inflation concerns, the dollar rally lost its steam and helped gold stage a decisive rebound.
The minutes of the FOMC’s December policy meeting, which was published late Wednesday, showed that policymakers saw it appropriate to start reducing the balance sheet soon after the first-rate hike. The statement’s surprisingly hawkish tone triggered a sharp upsurge in US T-bond yields and caused gold to reverse its direction. Meanwhile, ADP reported that private-sector employment in the US rose by 807,000 in December, compared to analysts’ estimate of 505,000.
The CME Group’s Fed Watch Tool’s March rate hike probability jumped above 70% early Thursday and gold broke below $1,800. Even though the dollar faced modest selling pressure after the mixed jobs report, the 10-year US T-bond yield held above 1.7%, limiting gold's upside.
This week
On Wednesday, the US Bureau of Labor Statistics will release the Consumer Price Index data for December.
The other high-tier data release next will be Friday’s Retail Sales data from the US. Although this report by itself is unlikely to alter the Fed’s policy outlook in a meaningful way, an upbeat print could help the dollar outperform its rivals and vice versa.
Short Term Outlook
A break of $1,800 opens risk towards $1,830 while a move lower will target $1,780 and then $1,765.
