The Spot gold prices slumped by 0.4% to $1,910.60, failing to continue the rally after touching an eight-month high at the end of last week. Gold futures fell half a percent to $1,913.00.
In Tuesday's (17/January) evening trading session, XAU/USD plunged 0.51% to $1,907.78, hitting a peak level of $1,925. The US dollar that stopped the decline became the reason for the decline in gold prices today.
Nevertheless, expectations for the Fed's policy to reduce its aggressiveness in raising interest rates are still quite strong. The price drop this time is believed to be part of the process towards a sideways trend.
People see this (gold price falling) more as a downturn in a sideways trend that leads to an upside. The analysts are confident that the combination of the weakening USD and inflation issues are essential.
Gold Supported by Expectations of Rate Slowdown
The aspects above can continue to support the positive environment on gold. This was said by David Meger of High Ridge Futures. The Fed rose their rates by 50 BP in December 2022.
That decision was taken after a 75 basis point hike four times. At the FOMC meeting next February, 90.6% of market respondents predicted that they would only raise rates by 25 basis points in February
Lower interest rates were transited into lower yields on interest-bearing assets such as government bonds. This means that investors may prefer gold even if it does not provide yields.
The Expectations clearly look like at this point. People will see two more 25 basis point rate hikes at the next two Fed meetings as said by Meger again.
Economy in China is Spotted
In addition, China's economy is also in the spotlight because it usually affects the price of gold. Considering China is the world's largest consumer of this precious metal.
The country, which is still struggling with Covid-19, recorded low growth in 2022. Nevertheless, the World Economic Forum is still optimistic that China will bounce back again.
It is especially after the "re-opening" policy after the lockdown which is able to boost its economic growth. In general, the price of gold will still occupy a high level at the beginning of 2023.
Goldman Sachs analysts expect the price trends to hover around $1,950 an ounce this year. He said further that everything will be depending on various changes in the market.
UK employee Salary Rises Again
The pound sterling rallied in Tuesday's (17/January) trading, following the release of better-than-expected UK labor data. GBP/USD climbed to a daily high of 1.2300.
It was happened before narrowly receding to the 1.2270s as it entered the New York session. Meanwhile, EUR/GBP pair plunged around 1 percent to a week's low.
The UK Office for National Statistics (ONS) reported that the average income index plus bonuses increased by 6.4 percent in November 2022. That was still occured though consensus only anticipates an increase of up to 6.2%.
The October data was also revised up from 6.1% to 6.2%. Other details in the same report are also encouraging.
High Salary will Drive Inflation to Accelerate
Britain's unemployment rate remains at 3.7%, but the number of jobless claims is less than expected. The quarterly employment change also increased by 27k, better than the estimate of only 5k.
High salary increases can continue to drive inflation to accelerate. Therefore, a number of analysts argue the data will urge the British central bank (BoE) to continue raising its interest rate.
A persistently entrenched inflation situation at a high level will also deter the BoE. That is from following in the Fed's footsteps in lowering the intensity of monetary tightening earlier this year.
Labor market data maintains pressure on the MPC (BoE) to raise interest rates by as much as 50 basis points next month, instead of slowing down. It was said by Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
