Gold prices rose late last week due to a weakening United States Dollar to a five-week low. Besides that, a slump in US bond yields, hitting investors' preparations for Fed Chairman Jerome Powell's testimony this week.
Spot gold prices fell from a 2.5 week high to $1,850.50. Meanwhile, gold futures still edged up by0.1% to $1,856.70. XAU/USD slipped by 0.24% to $1,851.37 as of this writing, Monday (06/March) evening.
Powell's testimony will be held on Tuesday and Wednesday tomorrow. Meanwhile, on Friday, the market will keep an eye on the American Employment report.
Kitco Metals analyst, Jim Wyckoff, said gold prices are likely to experience more volatility with respect to market doubts about upcoming U.S. economic data. In the short term, the price of gold is expected to be volatile.
Market Hopes for a Stronger Employment Data
The market expects stronger Employment data. This means that the Fed will tend to keep interest rates high for longer as said by Wwyckoff said.
That could have messed up the rally we've seen lately in gold. Since touching the lowest level at the end of December 2022, the price of gold has risen 2% until the end of last week.
However, if the issue of rising interest rates blows again strongly, then the increase in gold prices may reverse downwards. UBS analyst Giovanni Staunovo assesses that at present, the price of gold in general is still in a wait-and-see mode.
It is unlikely that there will be a change from Powell's remarks, which have previously echoed the importance of raising interest rates to control inflation. In tomorrow's testimony, Powell is expected to stick to that view.
Rising Interest Rates can Weight on Gold
Last Saturday, Fed President Mary Daly also hinted at a Fed rate hike if economic data still leads to hotter inflation. The President of the Richmond region Fed, Thomas Barkin, has instead set a target.
That is a target that the Fed should raise interest rates to the range of 5.5%-5.75%, from the current 5.0% rate. Rising interest rates will put pressure on gold prices.
World crude oil prices opened lower in early week trading (6/March). At the time of the news, Brent oil was down by 0.84 percent at $85.21 a barrel, while WTI was down by 0.93 percent at $79.08 a barrel.
Oil prices had surged significantly last week following market optimism over improving Chinese economic data. The reason is that the business and manufacturing investment sector in the country is recovering.
Growth Target is Lower than expectations
The recovered condition was happened after pandemic restrictions were lifted earlier this year. However, the rally in oil prices did not last long.
It is especially after the Chinese government announced this year's economic growth target was pegged at 5 percent. This figure is indeed up from the 3 percent growth target in 2022.
However, it was lower than economists' expectations. The lower GDP projection certainly disappointed market participants, especially oil investors, who expect China's economy to rebound sharply this year.
Market disappointment also affected oil prices. For your information, that price had to weaken since the Asian trading session this morning.
Investors Wait for Next Catalyst
ING analysts say that one of the reasons why the Chinese government does not want to brag about determining its economic growth projections is foreign demand, which this year is expected to slow.
The decline in demand in this case can have an adverse impact on China's export sector. The market's next attention shifts to China's inflation and trade reports to be released this week.
These two data are very important to the market because they can provide more clues about how solid China's economy will be in the first quarter of 2023. In addition, the market is also preparing to wait for Fed chairman Jerome Powell.
Powell will deliver testimony this week. Markets expect Powell to allude to the Fed's next rate outlook. Powell's testimony is expected to be the main catalyst that determines the direction of oil price movement in the short term.
