By Walid Salah El Din - FX Market Strategist

The gold could be underpinned by the Fed's apparent care of the inflation outlook which has been undermined by lower energy prices and higher greenback value.

The recent FOMC meeting minutes could bring back the gold from trading just below $1200 to be traded now near $1216 per ounce, as the Fed has underscored care of the inflation downside risk.

UST2 YR yield lost 0.08% falling to 0.58% and also UST 10YR yield has fallen to 2.05% after it could surge to 2.13% in the first US session of this week to make the greenback less attractive versus its rivals and to make the gold well-buoyed, after it has been under increasing downside pressure following the bullish release of US non-farm payroll of January.

As The gold is now well-tied to the interest rate in US, it has reacted positively to the inflation data which could easily show that the decision of raising the interest for the first time in US since 2006 can be delayed to sometime in the second half of this year, while the energy prices can be exposed to further down side risks and the greenback can gain momentum.

The roof of the market expectations of the interest rate in US now came down, despite the continued improving of the US economy as US PCE recent figure has shown rising in December by only 0.7% year on year, while the Fed's target is 2% yearly and taken a decision to hike the interest rate in US can drive this rate much lower and boost the greenback up.

The falling of the energy prices and the appreciation of the greenback could take their toll also on the import prices which has fallen yearly in January by 8% and also on the US trade balance deficit which rose to $46.56b in December from $39.75b in November.

So, the gold will be next moving between 2 elements which are the economic activity improving in US which is still underpinning the interest rate outlook and the inflation downside risks which are still lowering that outlook.

Until we see lower economic activity can weigh down further on the inflation level and send the gold up by lower much lower interest rate outlook or improving of the economic activity in US can be enough to overcome the inflation downside risks and raise the inflation up sending the gold down by higher interest rate outlook.

As a safe haven, It is important also to mention the risk of the Greek issue which came down recently, but if it is to rise again with no new deal can save Greece in EU, there can be contagion risk in EU in need to be contained and if it is not to be contained, there can be increasing demand for Gold.

 

Kind Regards

FX Market Strategist

Walid Salah El Din

Mob: +20 12 2465 9143

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