- XAU/USD gold futures extended losses at the end of the shortened trading week.
- According to the trading, the price of the yellow metal declined as a result of the strong US inflation report.
- This led to a rise in the returns of the dollar and US Treasury bonds, amid growing expectations that the Federal Reserve will continue to raise US interest rates with the approach of summer.
- Strong selling of XAU/USD gold prices amid the gains of the US dollar, reaching the support level of $1809 an ounce, the lowest gold price in two months.
The selling operations caused a weekly decline in gold prices by about 2%, which adds to its 2023 year-to-date loss of 0.6%. In the same performance, silver prices, the sister commodity to gold, fell below the level of $21 an ounce. In general, the white metal recorded a weekly decline of 4%, bringing its decline since the beginning of the year 2023 to date to nearly 14%.
Overall, US inflation was the talk of the town on Friday, as the Fed's preferred measure of inflation came in higher than expected. The annual personal consumption expenditures (PCE) index rose to 5.4% in January, up from 5.3% in December. This was higher than economists' expectations of 4.8%. Personal consumption expenditures prices rose 0.6% on a monthly basis, driven by higher utility and energy costs.
The core personal consumption expenditures price index rose 0.6% last month, up from 0.4% in December. This was also above market expectations of 0.4%. Core PCE prices rose to 4.7% year-on-year, higher than market expectations of 4.3%. Meanwhile, the University of Michigan's inflation forecast for the coming year rose to 4.1% in February from 3.9% in January. The five-year outlook was unchanged at 2.9%.
Among other economic data on Friday, the Bureau of Economic Analysis (BEA) reported that personal income and personal spending rose by 0.6% and 1.8%, respectively. US building permits rose 0.1% to 1.339 million units, while US new home sales increased 7.2% to 670,000 units.
Massive inflation figures have rocked Wall Street markets, causing investors to keep changing their expectations about interest rates.
Accordingly, the yield of the US Treasury bond market rose across the board, as the benchmark yield for ten-year bonds rose by more than nine basis points to 3.975%. One-month bond yields jumped 3.3 basis points to 4.624%, while 30-year yields increased 8.2 basis points to 3.96%.
The gold market in general is sensitive to rising interest rates because it can affect the opportunity cost of holding non-yielding bullion. However, the White House was upbeat on the personal consumption expenditures data, saying the administration has "made progress on inflation."
The annual inflation rate was lower in January than in the summer, while the US unemployment rate remained at or near a 50-year low, and home-based payrolls rose. "We've also continued to make progress since the data in this report, with gas prices falling again - now by more than $1.60 since last summer's peak after Putin's unbelievable invasion," US President Joe Biden added in a statement.
Meanwhile, the US Dollar Index (DXY), a measure of the greenback against a basket of other major currencies, rose above 105.00 on Friday, posting a weekly gain of 1.3%. Generally, a stronger profit is bad for dollar-denominated commodities because it makes them more expensive for foreign investors to buy.
In other metals markets, copper futures fell to $3.9525 a pound. Platinum futures fell to $909.40 an ounce. Palladium futures fell to 1375.00 an ounce.
Technical analysis of gold prices XAU/USD:
In the near term and according to the performance of the hourly chart, it appears that the XAU/USD gold price is trading within a bearish channel formation. This indicates a significant short-term bearish bias in market sentiment. Therefore, the bears will be looking to extend the current path of declines towards $1810 or lower to $1801 an ounce. On the other hand, the bulls will target reversal profits at around $1827 or higher at $1836 an ounce.
On the long term, and according to the performance on the daily chart, it appears that the yellow metal XAU/USD is trading within a sharp descending channel formation. This indicates a strong long-term bearish bias in market sentiment. Therefore, the bears will target long-term profits at around $1,791 or lower at $1,766 an ounce. On the other hand, the bulls will look to pounce on profits at around $1847 or higher at $1873 an ounce.
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