Markets Await Cues From Fed Minutes

Volatility in the markets across all asset classes remained low as the 21st Feb was US President’s Day Holiday. “Last week was an ultimate week of volatility where the US Dollar and US Bond yields surged abnormally over fresh hawkish US-based Data, which further implied till June 2023. This data soared the mood of the US equities and precious metals to some extent even though both have shown the ability to digest the data and comments for Fed and also their future limitations to implement more.” Shared Prithviraj Kothari, Managing Director, RiddhiSiddhi Bullions Limited.  

During the weekend some geopolitical tensions mounted as the US ambassador warned China to cross red lines if they directly support the military aid to Russia for its invasion of Ukraine. Hence the word of caution prevails across the Asian markets, which majorly opened flat. With a low profile day for precious metals, the only positive sentiment is the renewed geopolitical tension, especially between the US and China. 

According to the Bullion King, “Gold prices hit their highest since April 2022 early this month, but have since lost about $120 after a slew of economic data showed signs of a resilient U.S. economy and a tight labor market, fuelling concerns that interest rates would stay higher for longer. The price of the yellow metal has struggled in conjunction with the broader financial markets due to fears that the US central bank will continue to press the trigger to raise interest rates in its battle to beat inflation.” 

Gold prices hovered around a six-week low on Monday, moving little as traders awaited more cues on U.S. monetary policy.

Stubborn inflation, coupled with signs of strength in the jobs market, gives the Fed enough impetus to keep raising interest rates. The minutes of the Fed’s February meeting, due on Wednesday, is likely to reiterate the central bank’s hawkish stance.

The main factor for metallic commodities – and global financial markets – is the policy of the US Federal Reserve. While there was some hope that the US central bank might soon hit the pause button on its quantitative easing efforts, the recent wave of inflation data has cast doubt on the inflation-lowering narrative.

Gold marked three straight weeks of losses, falling sharply from a nine-month high hit earlier this year as overheated inflation readings and signs of strength in the US jobs markets indicated that the Federal Reserve had enough impetus to keep raising interest rates in the near term.

The Bullion King of India also feels that, “Gold and other precious metals could benefit from safe-haven buying later in the year, especially if slowing economic growth forces the Fed into reversing its hawkish

Markets are now uncertain over where U.S. interest rates will peak this year, with some analysts positing a potential terminal rate of over 6%.

Rising interest rates boost U.S. Treasury yields, which in turn increase the opportunity cost of holding non-yielding assets such as gold. The yellow metal plummeted in 2022 as the Fed embarked on an aggressive rate hike spree to curb inflation.

Focus this week is also on the personal consumption expenditures price index reading for January. The data, which is the Fed’s preferred gauge of inflation, is expected to have remained steady in January from the prior month, indicating sustained inflationary pressure.

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