Gold may hit $3,100 in short-term on hawkish pause by US Fed: Analyst

Gold Rate Today: FOMC rate decision, due tonight, will be crucial for commodities. The Fed is expected to keep the overnight Fed Fund rates unchanged at 4.25 per cent-4.50 per cent with a hawkish tilt

Gold – A fresh record high on safe haven demand

 

Gold Performance:

 

Buoyed by safe haven demand on political and economic uncertainties on the US President Trump's tariff plans, geopolitical worries, softer US yields, and a weaker Dollar, spot gold, on March 18, hit a fresh record high of $3,038.33 and closed 1.14 per cent higher at $3,034.13 as it rose for the second straight day.

 

The metal traded between $2,999 and $3,038.33.

 

Geopolitics:

 

Israel launched airstrikes across Gaza, killing hundreds of people as the nation accused Hamas of refusing to release remaining hostages. The airstrikes brought an end to nearly 2-month long ceasefire. Israel also struck in Lebanon and Syria amid US-Houthis scuffle. Hamas accused Israel of overturning the ceasefire agreement that will put captives in Gaza at a risk. 

 

Meanwhile, the US President pressurised Iran to rein in the Houthis as the President said that every shot fired by the Houthis will be a responsibility of Iranian leadership.

 

Much-awaited Trump-Putin conversation was concluded on Tuesday. Vladimir Putin agreed to a limited truce as he agreed to halt attacks on energy objects in Ukraine. Russia and Ukraine will swap 175 prisoners each on March 19.

 

Data roundup:

 

US housing starts (February) rose from 1350K in January to 1501K in February 2025. Import price Index (February) rose 0.4 per cent (estimate 0 per cent) M-o-M and 2 per cent Y-o-Y (estimate 1.6 per cent). Export price Index rose at a slower pace. Industrial production (February) was up 0.7 per cent vs the forecast of 0.2 per cent, though the prior data was revised lower from 0.5 per cent to 0.3 per cent.

 

The ZEW Indicator of Economic Sentiment for Germany jumped to 51.6 (forecast 48.10) in March 2025, the highest since February 2022.

 

US data released on March 17 showed that retail sales advance (February), at 0.2 per cent, fell short of the forecast of 0.60 per cent, though control group data, whose components go into GDP came at 1 per cent, which topped the forecast of 0.4 per cent.

 

US Dollar Index and yields:

 

The ten-year US yields swung between 4.26 per cent and 4.34 per cent. Yields settled at 4.28 per cent, down nearly 0.29 per cent on the day, despite an encouraging US industrial production and housing starts data and a tentative progress in Ukraine peace initiative.

 

The US Dollar Index fell for the third straight day as it closed at 103.25, down 0.12 per cent on the day.

 

Germany's 10-year bund yields remained flat at 4.81 per cent despite the lower Parliament passing the huge spending bill. Germany 10-year yields have surged by nearly 50 bps in the last one month, which has helped the Euro/Dollar rise around 7 per cent in one month.

 

Gold ETF Holdings:

 

Total known global gold ETF holdings, as on March 17, stood at 86.937 MOz, highest since October 2023.

 

ETF holdings continue to rise as gold prices rise; thus, providing support to the yellow metal. The holdings are up more than 4 MOz this year, which is around 5 per cent.

 

COMEX Gold inventory:

 

COMEX gold inventory at 40.466 MOz are at a record high and have risen around 230 per cent since the US Presidential elections on delivery demand of the buyers at the COMEX.

 

Shanghai Gold Discount:

 

Shanghai Gold, as of March 18, was trading at a discount of nearly $20 to the London prices.

 

Upcoming events:

 

FOMC rate decision, due tonight, will be crucial for commodities. The Fed is expected to keep the overnight Fed Fund rates unchanged at 4.25 per cent-4.50 per cent with a hawkish tilt as inflation continues to remain elevated. It is to be noted that University of Michigan one-year inflation expectations (February) reached 4.9 per cent, the highest since November 2022, with 5–10-year inflation expectations reaching 3.9 per cent, the highest since 1993. This is despite the fact that CPI (February) rose at a slower pace. 

 

Nonetheless, CPI, ex-food and energy, at 3.1 per cent (estimate 3.2 per cent) remains way above the Fed's 2 per cent inflation target. At the same time, although PPI (February) was tamer than expected, prior data was revised higher and some of the PCE Price Index components in this data, Fed's preferred gauge of inflation, remained elevated.

 

Swiss National Bank and Bank of England will deliver their monetary policies on March 20. The former is likely to cut its key rate by 25 bps to 25 bps, whereas the latter is likely to hold the rate steady at 4.5 per cent. 

 

Gold Outlook:

 

Huge ETF inflows, subdued US yields, weakening Dollar, geopolitical concerns – especially in the Middle East, economic concerns due to Trump's tariff policies, and stagflation risks are positive for the yellow metal. Traders may book some profit ahead of the US FOMC monetary policy decision; thus, buying the dips is the favoured strategy. Support is at $3,000 (MCX April contract Rs 87,700)/$2,975 (Rs 87,000)/$2,950 (Rs 86,300).

 

Resistance is at $3,050 (Rs 89,200)/$3,100 (Rs 90,600).

 

Bulls eye $3100 in the short-term.

 

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Disclaimer: Praveen Singh is associate vice president of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.