Commodity Market: Gold heads for largest weekly advance since early November on softer dollar, lower bond yields

Spot Gold was heading for its largest weekly advance since early November, while drawing support from a softer dollar and lower bond yields.

Market players awaited the next set of US macro data due out later on Friday for more clues about the Federal Reserve’s tapering timeline.

The US Dollar hovered just above a two-month trough and was set to register its sharpest weekly retreat in eight months, thus, making the yellow metal more affordable for international investors holding other currencies.

Additionally, the yield on US 10-year government bonds was poised for first weekly drop in four.

“Weakness in the U.S. dollar is supporting gold, which is likely to continue rising today,” Kunal Shah, head of research at Nirmal Bang Commodities, was quoted as saying by Reuters.

According to Shah, uncertainty over the impact of the upcoming monetary stimulus withdrawal in the world’s major economies amid resurgent COVID-19 infections is also supporting Gold.

Meanwhile, the December consumer price data from the United States added to expectations that the Federal Reserve could begin raising interest rates as early as March. Annual CPI inflation was reported at 7.0% in December, or the highest reading since June 1982, while Core CPI inflation stood at 5.5%.

“The Fed is going to be forced to begin raising rates in March and depending on the political pressure on them – from both sides of the aisle – they are going to have to raise rates four or more times in this year and potentially more than that next year,” Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, said.

Although Gold is often used as a hedge against inflation, the commodity tends to be very sensitive to increases in US interest rates.

As of 10:22 GMT on Friday Spot Gold was inching up 0.02% to trade at $1,823.22 per troy ounce. Earlier in the session the yellow metal climbed as high as $1,829.21 per troy ounce, which has been its strongest price level since January 5th ($1,829.63 per troy ounce).

The commodity looked set to register its fourth gain out of five weeks, while being up 1.51%.

Meanwhile, Gold futures for delivery in February were edging up 0.37% on the day to trade at $1,828.15 per troy ounce, while Silver futures for delivery in March were up 0.03% to trade at $23.168 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging down 0.15% to 94.715 on Friday. Earlier in the trading session the DXY slipped as low as 94.629, which has been its weakest level since November 10th 2021 (93.967).

In terms of macroeconomic data, today Gold traders will be paying attention to the December reports on US retail sales and industrial production due out at 13:30 GMT and 14:15 GMT respectively.

Near-term investor interest rate expectations were little changed. According to CME’s FedWatch Tool, as of January 14th, investors saw a 3.1% chance of the Federal Reserve raising interest rates to the 0.25%-0.50% range at its policy meeting on January 25th-26th, compared to a 3.7% chance on January 13th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,821.16
R1 – $1,829.89
R2 – $1,836.91
R3 – $1,845.64
R4 – $1,854.37

S1 – $1,814.13
S2 – $1,805.40
S3 – $1,798.38
S4 – $1,791.35