Gold nears 9-month high and $1,950 test on softening U.S. inflation

By Barani Krishnan

Investing.com -- Gold neared a nine-month high on Friday, approaching the key $1,950-an-ounce resistance, as softening U.S. inflation and rate hike expectations boosted contrarian safe-haven trades.

Gold for February delivery on New York’s Comex settled at $1,921.70, up $22.90, or 1.2%, on the day. Its session high of $1,925.25 was the loftiest for a front-month contract in Comex gold since the April 25 peak of $1,935.50.

U.S. gold futures have risen 5% since 2023 began, extending their near 4% gain from December and 7% from November.

The spot price of gold, more closely followed than futures by some traders, was at $1,919.54 by 15:10 ET (20:10 GMT) — up $22.63, or 1.2%, on the day. Spot gold’s intraday peak was $1,921.97— also the highest since April 25.

Gold has rallied over the past three months as receding inflation drove bond yields and the dollar lower on expectations that the Federal Reserve will be a lot less aggressive with rate hikes this year versus 2022, and might even wrap its monetary tightening well before the end of 2023.

“Gold prices are rising as Wall Street grows confident that the Fed is almost done with raising rates,” said Ed Moya, analyst at online trading platform OANDA. “Non-interest bearing gold is loving the slide in bond yields and that could continue as earnings come in softer-than-expected.”

The yield on the benchmark 10-Year U.S. Treasury note was at 3.47% on Friday, versus the October peak of 4.34%. The Dollar Index, which pits the greenback against six competing major currencies that include the euro and yen, steadied at just above 102, after tumbling from September’s highs of above 107.

The University of Michigan's closely-watched survey of consumers said on Friday that year-ahead inflation expectations among Americans has fallen for a fourth straight month in January, dipping to 4.0% from 4.4% in December. It was the lowest reading for price pressures since April 2021, the survey said.

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.

Moya, the analyst at OANDA, said if gold could “comfortably close above the $1,900 level, that could be a very bullish signal for the rest of the month”, adding that he expected "strong resistance at the $1,950 region" for the yellow metal.

The $1,950 resistance was flagged by Investing.com in a January 4 analysis, where technical chartist Sunil Kumar Dixit of SKCharting.com said it would be the key barrier for gold to get past in order to make a new record high above $2,100.

“Spot gold needs to stabilize at above $1,950,” said Dixit in that Investing.com analysis. “It might seem like a no-brainer — in order to get to a new record above $2,000, you’d need to cross $1,950.”

“But the reality is it is actually a structurally-important level for gold to consolidate and gain strength at, in order for it to make the next leap towards a record. It’s not just a natural progression. That stabilization at above $1,950 is key. And so far, that level appears to be a resistance.”