How to trade Gold amid US data, index rebalancing, geopolitical tensions?

Gold: Highly volatile due to conflicting market factors

 

Gold price performance:

>> On January 8, spot gold, reacting to Index rebalancing selling and implications of encouraging US ISM services data (December) released earlier, traded between $4,407 and $4,466.  >> Trading was choppy and volatile due to opposing factors. 

  >> At the time of writing this article, the yellow metal was trading at $4,459, up by $3 for the day. The MCX Gold February contract at Rs 1,37,833 was down 0.13 per cent. 

>> The yellow metal, despite being weaker, remains higher on the weekly basis. In the week ending January 2, the shiny metal slumped 4.47 per cent to $4,332.

 

Data roundup 

US ISM services (December) data released on January 7 came in at 54.40 versus the forecast of 52.20 as the services sector expanded for the third straight monthly expansion, growing at the fastest pace since September 2024. New orders, matching the November pace, rose at the quickest pace since September 2024, as the employment also rose. ADP data, precursor of the nonfarm payroll report, showed that US employers added 41,000 jobs in December, lower than the median estimate of 50,000 jobs. Job Openings and Labor Turnover Survey (JOLTs) job openings slumped from 7,670,000 jobs in November to 7,146,000 jobs in December, though quits rate increasing from 1.8 per cent to 2 per cent gives the impression that job mobility improved. 

Weekly US job data released on January 8 were largely mixed as jobless claims at 208, 000 jobs were better than the forecast of 212,000, but continuing claims rose from 1,858,000 to 1,914,000. US Trade balance in October was noted at -$29.49 billion, the narrowest trade deficit since June 2009 as imports, especially pharmaceuticals imports, dropped due to front loading in September in anticipation of 100 per cent tariff on pharmaceuticals starting October 1. The trade data will boost the US GDP growth in Q4 despite the Government shutdown.

 

Dollar Index and yields 

>> The US Dollar Index drew support from the US data to push higher for the third consecutive day. The Index rose 0.25 per cent to 98.92. 

>> Two-year and ten-year US yields rose by 1 bps and 2 bps respectively.

 

Index rebalancing 

In the near-term, there is a risk that a five-day rebalancing of commodities index may pressurise the precious metals. Index rebalancing managed by Bloomberg and S&P Global will begin on January 8, wherein passive funds will likely sell outperforming assets and buy underperforming commodities to match the new weights assigned by both the Bloomberg Commodity Index and the S&P GSCI.  Bloomberg estimates that around $120 billion is pegged to each Index, based on cash flowing from pension funds, and broader investment portfolios.  Roughly $7 billion of gold futures are set to be sold as gold weightage has been reduced from 20.19 per cent in 2025 to 14.90 per cent in 2026 in Bloomberg Commodity Index, while Goldman Sachs Commodities Index has changed weight from 10.39 per cent to 7.24 per cent. 

Central banks continue to buy gold 

>> Central banks purchased a net 45 tons of gold in November.

  >> China's Central Bank PBoC extended its gold buying spree to the fourteenth month as it added one ton gold to its forex reserves in December.

 

Perth Mint gold sales 

Perth Mint gold sales fell to 35,885 ounces in December from 66,710 oucnes in November.

 

ETF and COMEX Inventory 

>> Total known global gold ETF holdings stood at 98.985 MOz as of January 7. ETF holdings are up by 0.03 million ounces on a year-to-date basis and are at the highest level since April 2022. 

>> Eligible COMEX gold inventory at 17.058 million ounces is up 1.73 per cent from the cycle low of 16.76 million ounces noted on December 17 but is down 24 per cent from the record high of 22.45 million ounces recorded in April.

 

Geopolitical news 

>> The US Administration ousting the Venezuelan leader Maduro has led to heightened geopolitical tensions. As the US President Trump opines that military option is possible in case of Greenland, a region which suits the US security needs strategically, the implications of such a possibility have thrown European leadership into a disarray as the US-led security system characterized by the North Atlantic Treaty Organization (NATO) Umbrella faces an upheaval. 

>> European leaders have drawn a line over the Greenland issue as Denmark has told Trump to stop threatening Greenland.

A US intervention in Greenland would have huge repercussions for global power balance, which may destabilize the entire Western Alliance. 

>> Trump, on January 8, said that Venezuela oversight may last many years. 

  >> Reuters has reported that the U.S. Senate voted 52 to 47 to advance a resolution on January 8 to bar President Donald Trump from taking further military action against Venezuela without congressional authorization. Though procedural at this stage and not yet law, the resolution sets up a full Senate vote, requires House approval, and awaits the President’s signature. Even if it ultimately fails, it influences the President’s strategic calculations—acting as a political check that might discourage further unilateral interventions.

 

Upcoming data 

>> Major focus will be on the US nonfarm payroll (December) and CPI data to be released on January 9 and January 13 respectively. In addition, University of Michigan Sentiment and inflation expectations (January 9), PPI (January 14) and retail sales (January 14) will also entertain traders. 

>> Traders will also parse the Fed officials' speeches for clues to the Fed's monetary policy decision due on January 28.

 

Gold price outlook 

>> Huge volatility and choppiness are expected to continue in gold as traders navigate the maze of data and events in the very short term. 

>> Possibility of yet another margin hike by the CME is always a potential risk to late buyers.  >> Geopolitical worries will limit the downside.

 

>> Gold price may trade in a wide range in the near-term. Weak US nonfarm payroll data and tepid CPI data will be positive for the metal. 

>> Support is seen at $4,325 (Rs 133,600) / $4,296 (Rs 132,800) / $4,218 (Rs 130,00). Resistance is at $4,500 (Rs 1396,000) / $4,550 (Rs 140,700).      ========    (Disclaimer: Praveen Singh,  head currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)