On Tuesday (January 11), the international gold price continued to rise, supported by weaker yields on the dollar and U.S. Treasuries. Traders are waiting for December inflation data and weighing bets on faster rate hikes. Earlier, a number of investment banks reinforced expectations that the Fed would accelerate monetary tightening.
Spot gold rose 0.42% to $1809.24 / oz at 1521 Beijing time; the main COMEX gold contract rose 0.55% to $1808.7 / oz; and the dollar index fell 0.12% to 95.849.
The yield on the US 10-year note hit a nearly two-year high of 1.806 per cent overnight. Gold is seen as a hedge against rising inflation, but it is highly sensitive to higher US interest rates, which will increase the opportunity cost of holding non-interest-bearing gold.
The dollar fell against a basket of currencies. Traders are looking forward to a nomination hearing for current Federal Reserve Chairman Colin Powell later in the day, looking for new clues about the timing and pace of policy normalization.
Investors are now waiting for U. S. inflation data to be released on Wednesday. The core consumer price index ((CPI)) in the United States is expected to rise 5.4% in December, which is expected to rise again to its highest level in decades. The previous value is 4.9%.
Yang Yan, strategist at DailyFX, said: "both the rebound in US dollar and 10-year Treasury yields are supporting gold prices, but the market still expects interest rates to rise three or four times this year, which limits the upside of gold prices. If the actual figure exceeds this forecast, the market believes that core inflation is 5.4% higher than a year earlier, we may see a further rise in the dollar and a fall in the price of gold. However, if inflation is lower than expected, this may bring some comfort to gold. "
Goldman Sachs predicts that the Fed will raise interest rates four times in 2022 and expects the Fed to start cutting its balance sheet as soon as July. Jan Hatzius, the bank's chief economist, wrote that Goldman's forecast for US interest rates in 2022 was only slightly higher than market expectations, "but the gap widened significantly in subsequent years."
Over the weekend, J.P.Morgan predicted that the Fed is expected to raise interest rates ahead of schedule and expects to raise interest rates every quarter of this year. "We believe Fed officials will come to the same conclusion that the labour market is so tight that it will be difficult to postpone the first rate hike to the time we had expected," Michael Feroli, the bank's chief economist, wrote.
Deutsche Bank said last week that it expected the Fed to raise interest rates four times this year after the non-farm payrolls data were released in December. Although the employment data is lower than the market expected, it shows that more progress has been made in maximizing employment. The German bank also expects the Fed to start shrinking its balance sheet in the third quarter.
