Beware of a further plunge in the US dollar; if this key data 'explodes', gold prices could surge by $25

On Thursday, January 13, during the Asian morning session, the US dollar index continued to be under pressure, currently trading below the 95 mark. Spot gold remained stable near $1825 per ounce. On this trading day, Federal Reserve Governor Lael Brainard will attend a Senate Banking Committee hearing on her nomination as Vice Chair of the Federal Reserve. In addition, investors will receive another inflation-related data point—the PPI data—after Wednesday's US CPI data triggered market movements. Some analysts point out that if the US PPI data is stronger than expected, gold prices are expected to further rise to $1850 per ounce.

　 　US CPI Triggers Market Reaction, Dollar Falls Below 95, Gold Prices Continue to Rise

　　Data released by the US Department of Labor on Wednesday showed that the US Consumer Price Index (CPI) rose 7% year-on-year in December, up from 6.8% in November, the fastest pace since 1982 and the third consecutive month that inflation has exceeded 6%. The month-on-month increase in December's CPI was 0.5%. Economists surveyed by Dow Jones had previously predicted that the US CPI would rise 7% year-on-year and 0.4% month-on-month in December.

　　The US core CPI rose 5.5% year-on-year in December, up from 4.9% in November, the largest increase since 1991; the month-on-month increase was 0.6%. Economists' previous predictions were 5.4% year-on-year and 0.5% month-on-month.

　　Sarah House, director and senior economist at Wells Fargo, said that inflation currently has tremendous momentum. Although it may peak in the coming months, the overall pace of inflation will remain a challenge for consumers, businesses, and related policies.

　　As the data met market expectations and the market had already digested the Fed's hawkish expectations, the dollar was pressured, while gold prices continued to rise.

　　The US dollar index closed at 95.00 on Wednesday, down 0.64%, with an intraday high of 95.70 and a low of 94.90. Spot gold closed at $1826.01 per ounce on Wednesday, up $4.62 or 0.25%.

　　Fawad Razaqzada, market analyst at ThinkMarkets, said in a recent market report: "The market seems to have prepared for hotter inflation, but that clearly didn't happen. So the market reaction is more like a sigh of relief."

　　Joe Manimbo, senior market analyst at Western Union Business Solutions, said: "The US economy seems ready for rate hikes starting in March. However, the problem with the dollar is that the market already has very hawkish expectations for the Fed's policy this year. Therefore, today's CPI prices being so hot only reinforces factors that have already impacted the dollar and Fed policy."

　　The dollar had already weakened on Tuesday, and Fed Chairman Powell's remarks had little impact on expectations of rising inflation and financial market volatility.

　　At his confirmation hearing for a second four-year term, Powell said the Fed's rate hike plan should not affect the economy or harm the job market, essentially painting a picture of a "soft landing" rather than a recession. Powell said that if the Fed sees inflation lasting longer than expected, it will have to raise interest rates further over time, but did not mention specific rate hike timelines.

　　Jeff Wright, chief investment officer of Wolfpack Capital, said of Powell's remarks: "No extreme remarks, quite dovish and no surprises."

　　Peter Grant, vice president and senior metals strategist at Zaner Metals, said that Powell's remarks on Tuesday that policy normalization would be a "long road" "somewhat offset the more hawkish tone in the recently released FOMC minutes."

　　David Meger, head of metals trading at High Ridge Futures, said that increasing inflationary pressures could support gold prices in the coming weeks, pushing prices above the technical resistance level near $1830 per ounce.

　　Peter Spina, president and CEO of GoldSeek, said: "The most important thing for gold is that it makes gold soar at rocket speed, and inflation is the rocket fuel. Now, as the situation shows that inflation has fully integrated into the economic system, and people's awareness of inflation is also increasing, gold will benefit greatly."

　　 US PPI and Brainard's Speech Incoming

　　At 21:30 Hong Kong time on Thursday, investors will receive the US Producer Price Index (PPI) for December. This is the most closely watched economic indicator of the day.

　　Surveys by overseas authoritative media show that the US PPI is expected to rise 0.4% month-on-month and 9.8% year-on-year in December. The US core PPI is expected to rise 0.5% month-on-month and 8.0% year-on-year in December.

　　Data released by the US Department of Labor on December 14, 2021, showed that the US PPI rose 9.6% year-on-year in November, the largest year-on-year increase since the agency began collecting this data in November 2010.

　　The US core PPI rose 7.7% year-on-year in November, a record high. The US PPI rose 0.8% month-on-month in November, and the core PPI rose 0.7% month-on-month.

　　Chintan Karnani, head of research at Insignia Consultants, said that if the US PPI released on Thursday is higher than expected, gold prices may try to break through the $1850 per ounce level.

　　Federal Reserve officials are closely monitoring inflation data. With rising prices and a labor market nearing full employment, investors widely expect the Fed to begin raising interest rates in March.

　　The dot plot released by the Fed at its December meeting projected that the Fed would raise interest rates three times this year, by 25 basis points each time. However, Wall Street investment banks such as Goldman Sachs and JPMorgan Chase recently predicted that the Fed may raise interest rates four times this year.

　　The latest CME FedWatch Tool shows that traders see a 74.4% probability of the Fed raising interest rates in March and about a 50% probability of a fourth rate hike this year in December.

　　At 23:00 Hong Kong time on Thursday, the US Senate Banking Committee will hold a hearing on the nomination of Lael Brainard as Vice Chair of the Federal Reserve.

　　In remarks prepared for her nomination hearing before the Senate Banking Committee, Brainard said: "Inflation is too high, and people across the country are worried about their paychecks. The focus of our monetary policy is to bring inflation back down to 2% while maintaining an inclusive recovery. This is our most important task."

　　US President Biden nominated Brainard to succeed Richard Clarida as Vice Chair of the Federal Reserve. Fed Chairman Powell has already appeared at a hearing this week on his renomination.

　　Although the text of Governor Brainard's testimony to Capitol Hill has been released in advance, the Q&A session is bound to reveal more information and may cause market fluctuations.

　　Brainard's appearance before the Senate hearing marks the first time investors have heard from her in a while; her last remarks on the economic outlook were in September 2021.