Gold clings to $1,900 support after struggle to push higher

By Barani Krishnan

Investing.com -- Gold’s getting stopped before the anticipated $1,950 resistance, though it seems to have found a bed at $1,900.

Gold for February delivery on New York’s Comex settled at $1,907 per ounce on Wednesday, down $2.90, or 0.2%. The U.S. gold futures contract reached a session high of $1,928, just short of Tuesday’s $1,931.80 peak, which itself was the yellow metal’s loftiest since an April 25 peak of $1,935.50.

The spot price of gold, more closely followed than futures by some traders, was at $1,903.68 by 14:15 ET (19:15 GMT) — down $4.94, or 0.3%. Spot gold’s intraday peak was $1,925.93 — also the highest since April 25.

“Gold prices softened but are still holding onto the $1,900 level,” said Ed Moya, analyst at online trading platform OANDA. “The end of Fed tightening is approaching us, but a shallow recession might not be supportive of inflows for gold as that might lead to a stronger dollar. Gold’s rally looks like it will take a break here, but it could resume if yields continue to slide.”

The Dollar Index, which measures the U.S. currency against a basket of six major rivals including the euro and yen, hit a nine-month low of 101.265 on Wednesday. The yield on the benchmark U.S. 10-year Treasury note, meanwhile, sank to a three-month trough of 3.381.

The dollar and bond yields are tumbling in anticipation the Federal Reserve will execute its smallest rate hike in eight months at the Feb.1 conclusion of its next policy meeting, versus a stream of aggressive increases it pulled off in 2022.

Officially, inflation, as indicated by the Consumer Price Index, or CPI, rose by 6.5% in the 12 months to December, the U.S. Labor Department said Thursday. It was the slowest annual advance for the CPI since October 2021.

The CPI hit a 40-year high in June when it grew at an annual rate of 9.1%, versus the Fed's inflation target of just 2% per annum. In a bid to control surging prices, the Fed added 425 basis points to interest rates since March via seven rate hikes. Prior to that, interest rates peaked at just 25 basis points, as the central bank slashed them to nearly zero after the global COVID-19 outbreak in 2020. The Fed, which executed four back-to-back jumbo rate hikes of 75 basis points from June through November, imposed a more modest 50-basis point increase in December.

For its next rate decision on Feb. 1, economists expect the central bank to announce an even smaller hike of 25 basis points.

The last time the Fed announced a 25 basis-point increase was in March 2022, at the start of its current rate hike cycle.

U.S. economic data has come in weaker than anticipated this week, in further testimony that the Fed’s rate hikes were working.

The Fed said U.S. industrial production fell for a second month in a row in December amid lower factory output that suggested manufacturers were slowing activity based on the softening demand for goods.

Separately, the New York division of the Fed reported on Tuesday that the NY Fed Manufacturing survey posted a -32.9 reading for December, versus a forecast of -8.6% and -11.20 for November. It was the steepest monthly slide in manufacturing since September 2021.

The drop in industrial production and manufacturing coincided with U.S. producer prices falling their most in nearly three years in December, after the sharpest tumble in a year in retail sales.

Notwithstanding Wednesday’s retreat, the front-month gold contract on Comex has risen more than 4% since 2023 began, extending a similar gain from December and a 7% rise from November.

The Comex gold benchmark could hold well at $1,900, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“In a bull trend, buyers never miss any opportunity for value buying,” said Dixit. “A successful break above $1,920, followed by acceptance above $1,928, will help gold rise to $1,943 and $1,950. Our major resistance and target sits at $1,980.”

On the flip side, a break and sustained trade below $1,920 leaves the potential for a further drop to $1,885 and $1,868, said Dixit.