Dollar rises, treasuries slump

Commodities reaction to latest Job Data

Reacting to the December 2016 jobs data, the dollar rose against a basket of major global currencies. On the other hand, prices of US Treasuries fell, with the yield on the 30-year bond rising to 3% on January 06th, 2017. Other data showed the trade deficit widening 6.8% to $45.2 billion in November 2016 as imports rose to their highest level in over a year on rising oil prices.u1

Gold slips from one-month high

In a parallel development, gold slipped from the previous day’s one-month high on January 06th, 2017, as the dollar strengthened against a basket of currencies, lifted by US non-farm payrolls data. The jobs data supported the view that the US Federal Reserve will press ahead with interest rate increases in 2017. Spot gold was down 0.4% at $1,175.90 an ounce. The metal was still 2.2% higher this week, its biggest weekly rise in two months, helped by a broad weakening of the dollar earlier in the week and a retreat in US bond yields.u2

Among other precious metals, palladium hit a five-week high of $755.40 an ounce before slipping back to $744.95, up 0.9%. The metal used in vehicle catalysts to clean exhaust emissions has risen 10% this week, its biggest gain since the week ending July 01st, 2016, driven by data that showed US sales of new cars and trucks hit a record high in 2016.u3

Spot silver was down 0.7% at $16.46, having hit a peak of $16.71, its highest since December 15th, 2016, in the previous session. Platinum was 0.6% lower at $961.99, putting it on track for a gain of 7.2% during the week. The metal touched its highest level in nearly eight weeks at $975.80 on Thursday, January 05th, 2017.u4

With the Fed indicating that it would consider hiking rates at least three more times in 2017, the higher interest rates are expected to exert downward pressure on the gold price by increasing the opportunity cost of holding non-yielding bullion. Prices in federal funds futures contracts implied that investors are expecting the Fed to raise rates twice in 2017. The focus now shifts to the Federal Open Market Committee’s next meeting scheduled for January 31st to February 01st, 2017, in Washington, where the Fed will deliberate over its course of action with regard to interest rate hikes over the next few months.

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