Gold prices may correct further; check support levels to buy the dips

Gold – May correct further

Gold performance:

Spot gold prices fell for a second consecutive time on May 27 as easing trade tensions, following US President Donald Trump delaying proposed 50 per cent tariff on Europe, boosted risk appetite. Further, speculations that Japan will try to cap rise in long-term yields. The Japanese Finance Ministry sent a questionnaire to market participants regarding appropriate issuance amounts for government bonds. It is to be noted that Japan's long-term yields soared to record highs last week after a sale of 20-year debt got the weakest demand in more than a decade. Decline in yields globally supported risk assets and weighed on precious metals in turn.

 

On May 27, spot gold was changing hands at $3,295, down 1.43 per cent. The yellow metal traded between $3,285 and $3,250 during the day. MCX gold (June), meanwhile,  was at ₹95,047, down around 0.94 per cent. 

US Dollar Index and yields:

10-year US Treasury yields were at 4.43 per cent, down nearly 1.8 per cent on Tuesday, as global yields fell. Thirty-year US yields fell nearly 2 per cent to 4.93 per cent, moving back below the 5-per cent mark after three days.

 

The US Dollar Index, at 99.54, was up around 0.6 per cent on the day.

Data roundup:

US data released on Tuesday were largely positive for the US Dollar as durable goods orders (April prel.) came in at -6.3 per cent that beat the forecast of -7.8 per cent. Similarly, durables, ex-transport, came at 0.2 per cent and topped the estimate of 0 per cent. However, prior data were revised lower. FHFA House Price Index rose 0.1 per cent M-o-M in March, which trailed the forecast of 0.1 per cent. Conference Board Consumer Confidence (May) rose 98, the highest since February and topped the median estimate of 87.10. US consumer confidence rebounded from a near five-year low on improving economic outlook amid tariff truce talks. 

Upcoming data:

Traders will look forward to FOMC minutes (May 7 meeting).

 

That apart, today's Richmond Fed manufacturing Index (May) and Dallas Fed Services Activity (May) will be released in the US today. However, major focus will be on the US GDP (Q1 secondary reading), personal consumption (Q1 secondary reading), and weekly job data to be released on May 29.

China's gold imports rose to an 11-month high:

China imported 127.5 metric tonnes of gold in April -- an 11-month high. China gold import was up 73 per cent M-o-M despite high prices.

Swiss gold exports decline:

Swiss gold exports fell 31 per cent in April to 104 tonnes as shipments to the US slumped 88 per cent to 12.70 tonnes. 

Gold ETF:

Total known global gold ETF holdings fell to 87.851MOz, lowest since April 8, as ETFs saw outflows for the fifth straight week. Nonetheless, holdings are up around 6% YTD.

Gold Outlook:

Reduced safe haven demand and strong US Conference Board Consumer Confidence data amid stabilising yields are likely to lead to further correction in gold prices unless trade concerns resurface.

 

ETF outflows and a firmer Dollar can boost the downside pressure.

 

Spot gold may test the support zone of $3,250-$3,257 (₹93,700-₹93,950). Downside from current level may be limited though. Resistance is at $3,325 (₹95,900)/$3,350 (₹96,600).

 

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