gold price outlook: Increased risk appetite will take away some of gold’s strength; Where will the price go next?

Risk sentiment improved and haven demand fell.

US Treasury Secretary Janet Yellen told lawmakers that regulators would prepare for next steps to protect the banking system if warranted.

Overall, it was a risky week, as investors viewed the bank’s collapse as a single and manageable event.

Fed officials see more work on inflationary ahead, despite the recent banking turmoil, and continue to be hawkish in their statements.

Federal Reserve Bank of Boston President Susan Collins said the banking system is stable and needs more interest rates to reduce inflation.

Meanwhile, Federal Reserve Governor Philip Jefferson said the US central bank will try to avoid hurting the US economy more than it needs to when it faces high inflation. “The current inflation rate is too high. The Federal Open Market Committee’s goal is to get it back to 2%, sooner rather than later,” he said.

In contrast, the President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, said the recent banking turmoil had increased the risk of a US recession but that it was too early to gauge its implications for the economy. economic and monetary policy.

Despite hawkish comments from officials, the dollar index fell near a two-month low of 102.1.

On the economic data front, the U.S. economy grew 2.6% quarterly quarter-on-quarter in the last three months of 2022, slightly below initial estimates for a 2.7% growth.

At the same time, weekly US jobless claims rose 7,000 from the previous week to 198,000 for the week ended March 25, slightly above expectations of 196,000.

A drop in the greenback usually leads to higher Yellow however, this was more than offset by an increase in US Treasury yields amid improved risk sentiment.

March will see the first month of net inflows into the gold ETF after 10 months of withdrawals. Holds in the SPDR gold ETF rose to a 6-month high since March 30.

Amid ongoing de-dollarization efforts, rising geopolitical tensions and stalling inflation fears, central banks could also continue to be strong buyers of gold into 2023. Retail demand is expected to take a hit as prices are hovering near record highs.

During the FOMC meeting in March, the Fed chair acknowledged they were nearing the end of rate hikes in this cycle.

Crypto markets are expecting the Fed to pause interest rates during the May FOMC meeting, with gains of less than 10 bps similarly priced. However, recent easing of banking concerns and belligerent comments from Fed officials have also dampened expectations of a rate cut by 50 basis points by year-end, limiting the possibility of further increases. price of ingots.

US Labor and Manufacturing PMI data could be in the spotlight next week, as the official Manufacturing PMI has been contracting for the past four months.

U.S. nonfarm payrolls are expected to decline in March and gold prices are expected to remain steady on the back of a weak dollar and the Fed’s pivot outlook.

Having said that, in the event of any data surprises, markets could start pricing in a 25 basis point rate hike for the May meeting, which could prove to be a headwind. short term for the economy. yellow metal.

(Author is VP-Head Commodity Research, Kotak Securities Ltd)

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