Gold Rallies on a Weaker Dollar

Gold prices have increased to start 2023 as the dollar index extends last Friday's losses. Economic data released last week could lead to a more dovish approach from the Fed compared to previous expectations. A decline in the 10-year Treasury yield was bearish for the dollar and bullish for gold prices. Central banks have shown a surge in gold buying pushing prices higher.

The dollar index dropped to a 7-month low yesterday, falling nearly -.80%. The economic data released last Friday fueled the drop in the dollar and caused gold prices to push higher. The economic news showed a smaller increase in wages against expectations and a drop in service sector activity.

Atlanta Fed President Bostic commented yesterday that if we were to see a cooler U.S. CPI report on Thursday there is a possibility for a 25-basis point rate hike for the February FOMC meeting.

U.S. economic news released yesterday did beat expectations with Nov consumer credit rising +$27.962 billion against the expected +$25.0 billion increase.

The CME Fed Watch tool currently has an 80.2% chance of the Fed increasing rates 25-basis points to a target rate of 450-475 bp and a 19.8% chance of a 50-basis point increase to a target rate of 475-500 bp.

Earlier this week reports came in of central banks purchasing gold. The IMF indicated in Q4 of 2022 that central bank gold buying activity can be delayed in reporting with confirmations coming in months after the purchase. Recent reports show that the Peoples Bank of China bought 30 tons of gold during December and 32 tons during the month of November.