Gold, silver price likely to see rebound ahead of FOMC meeting next week

COMEX Gold prices touch all-time high last week

By Ravindra V Rao, CMT, VP-Head Commodity Research at Kotak Securities

The last week ended December 8 witnessed a cautious market sentiment as optimism around the Federal Reserve's aggressive stance on unwinding monetary tightening faced skepticism. The rally in risky assets lost steam, primarily influenced by a stronger-than-expected jobs report challenging calls for expedited rate cuts in 2024.

The US Dollar, after declining for three consecutive weeks, rebounded sharply to 104.2 from a three-and-a-half-month low of 102.46. Federal Reserve Chair Powell's remarks indicated a hesitancy to rule out further rate rises or discuss cuts, contributing to the Dollar's regained momentum. Despite data hinting at a cooling labour market, the Dollar held on to gains.

Midweek, the US private sector job creation slowed, and wages exhibited their smallest growth since September 2021, supporting the consensus for Federal Reserve monetary easing next year. However, the Friday US jobs report changed the narrative, showing nearly 200 thousand job additions, an unexpected drop in the unemployment rate, and continued strong wage growth. This challenged earlier expectations for rate cuts in 2024.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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COMEX Gold prices touched an all-time high of $2,152.3 per troy ounce earlier in the week, driven by investor bets on Fed rate hikes. However, the prices retraced their gains as the US dollar strengthened, and a robust US labour report suggested that aggressive pricing of Federal Reserve rate cuts might have been excessive. Gold saw a significant 3 percent drop during the week, while Silver ended with a substantial 10 percent decline, influenced by the increasing opportunity cost of holding bullion amidst the potential for a prolonged period of restrictive interest rates.

On the price action front, the extensive selling observed in precious metals appears to have been exaggerated following the release of the US labour market report. Both gold and silver have concluded trading sessions in proximity to their support levels. There is a possibility of a rebound as we approach the upcoming FOMC meeting next week.

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WTI Crude managed to hold steady above $70 a barrel, but sustained near five-month lows, marking the seventh consecutive week of decline. Oversupply concerns overshadowed optimism from OPEC+'s plans to rein in production into 2024. The EIA report indicated a significant inventory build in gasoline and distillates, offsetting the crude draw.

In the beginning, prices found support as Saudi Arabia assured the markets of its commitment to output cuts. However, market skepticism persisted regarding the compliance of other OPEC+ members with voluntary reductions. Worries over a potential supply glut triggered a significant pullback in prices, with figures dropping from $75 a barrel to $68.8 a barrel throughout the week.

LME base metals faced downward pressure following Moody's downgrade of Chinese sovereign bonds, highlighting global concerns over debt levels. Despite starting the week positively, driven by a rise in Caixin services PMI, concerns persisted, especially after data revealed a contraction in both official manufacturing and services PMI in November.

Looking ahead, a slew of economic events is lined up for the coming week. The monetary policy meetings of the Federal Reserve, European Central Bank, and Bank of England are expected to drive currency markets and the Dollar. Analysts anticipate that US policymakers will maintain interest rates at a 22-year high, prompting investors to scrutinize the Fed's statement and Chair Jerome Powell's press conference for hints regarding potential rate cuts in 2024.

Additionally, US inflation numbers, retail sales data, along with Western PMIs and Chinese industrial production, will be closely monitored.

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