Gold looks sturdy at US$1,800

04 February 2022

Friday 4 February 2022

In this week's market report:

US dollar weakness supports gold
‘Supersized rate rises “on the table”’ says AFR
Kitco — Rate hikes unlikely to hurt gold

Dear Investor,

US dollar gold price [XAUUSD] Daily chart

Source: Trading View
(Click to enlarge)

US dollar weakness supports gold: Au is marginally higher this week by 0.50% to US$1,805 per ounce. Gold currently looks to have an anchor point at US$1,790-1,800. Gold has shrugged off the hawkish tone from the Federal Reserve Bank this week, with a handful of factors keeping gold elevated:

US dollar weakness: the DXY is down 2% in the past week.
President Joe Biden orders 3,000 troops to Eastern Europe relating to the Russia-Ukraine standoff.
The ADP National Employment report - private payroll data in the US - surprised the market by decreasing by 301,000 for the first time in a year, adding to concerns about an economic slowdown in the US.

Uneven, precious metal moves this week:

Silver is down 1.50% to US$22.42
Platinum is up 2.35% this week to US$1,038
Palladium is down slightly by 2% to US$2,312

Bulls, macro backdrop is supportive for gold: Current macro-economic factors are supportive for gold, with ABC Bullion’s Global General Manager Nick Frappell recently saying, ‘The market feels as if it is near the upper side of the near-term trading range.’

Bears, resistance is above: US$1,830 remains a level gold needs to move through.

Gold in Australian dollars: The Australian gold price is down 1% this week, largely due to the AUDUSD cross rate increasing 1.50% to 71.42 US cents, muting any spot price gains.
A note on the RBA’s first meeting for 2022: The first Reserve Bank of Australia (RBA) meeting for 2022 was on Tuesday. While the RBA gave no indication raise would increase, it left the door open for higher rates later this year.

This is a stark turnaround from the final quarter of 2021. RBA Governor Philip Lowe was confident the 0.10% cash rate would remain until 2024 ‘at the earliest’. This seemed unlikely, as the AFR neatly summarised on Wednesday:

‘From the start, The Australian Financial Review reckoned that the central bank’s “forward guidance” that it might run a virtual zero interest rate policy for more than three years simply did not pass the pub test, as the dirt cheap money was bound to inflate asset prices and risk destabilising the economy.’

‘Supersized rate rises “on the table”’ says AFR:

Last week the Federal Reserve Bank gave the market firm indication they would begin increasing rates in March. The size and speed of hikes is yet to be revealed.

President of the Fed’s Altana Branch, Raphael Bostic, has continued called for sizeable increases — as large as three quarter point (75 basis points) increases. Bostic has even suggested a more approached could be implemented if the data suggests it. Saying:

‘Every option is on the table for every meeting,” Mr Bostic said on Friday (Saturday AEDT). “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that ... If moving in successive meetings makes sense, I’ll be comfortable with that.
‘I do think that a view has emerged that we have some meetings that we really just dial it in and that there’s no ability of action at, and that’s just never been my mindset.’

Kitco — Rate hikes unlikely to hurt gold:

‘Gold's potential upside stems from the Fed's hawkish stance to fight inflation as the US stock market gives up last year's gains.
‘“The fact that gold responded well when the Federal Reserve started the last rate-hike cycle in 2015 -- and when it ended in 2019 -- may favour the metal in 2022. Not since the 2008-09 financial crisis has the one-year-out fed-fund future priced for a similar extreme disparity of higher hikes as now. This dichotomy about 14 years ago coincided with a gold foundation of around US$800 an ounce, on the way to the 2011 peak just above US$1,800 -- near the current price," McGlone explained.
‘All eyes are on the Fed's March decision, with the CME's FedWatch Tool pricing in a 92.5% chance of a 25-basis-point rate hike. If all goes according to plan, gold might be looking at a similar launchpad as December 2015, when gold rallied from $1,000 an ounce to above US$1,300 an ounce within just six months.’