Gold outlook bleak; avoid aggressive selling without stop loss: Analyst

Gold price outlook: Near-term resistance is at $4140/$4227; support is at $4000/$3930.

Disclaimer: This article is written by Praveen Singh, head of commodities at Mirae Asset Sharekhan. Views expressed are his own. Readers' discretion is advised.

 

On October 22, spot gold prices fell through the support at $4066; thus, the metal moved out of its $4066-$4226 October range. The yellow metal broke below $4100 on surge in oil prices even as the dollar index and yields were largely subdued.

 

Firming up of the dollar as the day wore on pulled down the metal further. As of Thursday night, spot gold was trading at $4037, the lowest since August 3. It was down 2.5 per cent for the day.

 

Geopolitics and oil

Crude oil prices surged more than 3 per cent on October 22 on dwindling hope of the US-Iran deal as the US President Trump denied Iran talks. A drone attack on Aramco’s Shaybah field on October 21 killed two people, which amplified supply worries.

 

Although crude oil flows through the Middle East have topped pre-war volumes, concerns over escalation of US-Iran tensions, steep crack spread, low SPR Reserves and lingering uncertainty over oil flows continue to support oil prices.

 

Brent crude oil futures jumped to $112.68 on Thursday, highest since May, and were up more than 3 per cent for the day.    

 

Gold ETF

Gold ETF flows remain quite encouraging. Total net global gold ETF holdings rose to 101.55 Moz, highest since July 2022, as ETFs recorded a net inflow of 0.68 Moz in October. ETFs’ holdings are now up 2.60 Moz (81 tons) YTD and up 0.63 Moz (20 tons) since the beginning of the Iran war on February 28.

 

Data roundup

This week is light on the US data front. ADP weekly employment change data for the week ending October 3 came in at 18.5K as compared to 26K in the previous week. US housing data were disappointing. NAHB Housing Index fell from 32 in September to 29 in October -- lowest since 2012. Housing starts in September slumped from 1288K in August to 1221K (forecast 1305K), a six-year low excluding the May data. Similarly, pending home sales fell 7.3 per cent on the month in September versus the estimate of -0.5 per cent. Jobless claims rose from 7K to 303.K. Weekly jobless claims slid from 200K to 194K, while continuing claims rose from 1703K to 1728K. Overall, weekly job data remain healthy in ‘low hire, low fire’ scenario. 

 

September Leading Index was steady against the forecast of -0.1 per cent. UK's employment report for September was mixed. Average weekly earnings slowed down from August. Earnings rose 3.7 per cent Y-o-Y versus the estimate of 3.8 per cent and prior 3.9 per cent. 3M-3M employment change at 102K topped the estimate of 5K, while 3 months unemployment rate edged lower from 4.9 per cent to 4.7 per cent (forecast 4.9 per cent).

 

UK’s September CPI inflation were hotter-than-expected. CPI inflation rose 3.5 per cent Y-o-Y compared with the estimate of 3.4 per cent and 3.1 per cent prior, while it was up 0.4 per cent M-o-M versus the forecast of 0.3 per cent. The headline CPI reading is the hottest since October 2025. Core CPI rose 2.8 per cent Y-o-Y, in line with the forecast but hotter than the August reading of 2.6 per cent.  

 

US Dollar Index and yields

The US Dollar Index, which rose to 102.95 on October 14 in the wake of hotter-than-expected US CPI data for September, has been consolidating around in the 101.50-102 range. The index, at the time of writing was hovering around 101.87, up 0.06 per cent for the day. US yields slid on Thursday. Two-year yields were noted at 4.69 per cent, down 2.29 per cent for the day, and down 5.44 per cent from the cycle high of 4.94 per cent seen on October 14; 10-year yield was at 5.01 per cent, down over 2 per cent.

 

October Fed rate hike probability

Traders assign a probability of merely 7 per cent to the event of the Fed hiking rates at its October 28 meeting.

 

World Gold Council’s research

According to Kavita Chacko, research head for India at the World Gold Council (WGC), domestic gold price discounts for gold narrowed sharply in October. Discounts dropped from an average of $66 per ounce in September to $8 as of October 16 on improving seasonal demand. Seasonal gold demand is gaining strength in annual festive and wedding period as recent decline in gold prices supports demand.

 

Gold bar and coin demand has moderated this year on waning price momentum. Net ETF inflows rose to US $466.2 million in September, the highest in seven months and nearly 3 tons of gold were added to holdings during the month, taking the cumulative holdings to 124 tons.

 

Central bank watch

China’s PBoC kept one-year and five-year Loan Prime Rates unchanged at 3 per cent and 3.5 per cent in its policy announced on October 20. The US federal Reserve will deliver its monetary policy on October 28.

 

The European Central Bank will announce its monetary policy on October 29. It is widely expected that both the central banks will keep their respective rates unchanged. However, major focus will be on the Fed’s stance on future monetary policy meetings as investors gear up for a rate hike in December FOMC meeting, though the Fed Chair Warsh adhering to his policy of ‘no forward guidance’ will abstain from giving any clear signals. 

 

UK Chancellor of the exchequer John Healey will present annual budget to the Parliament on October 28. The Office for Budget Responsibility will release its fiscal and economic forecasts the same day.

 

Upcoming data

Major US data on card in the near term include ADP weekly employment change (October 27), October Conference Board Consumer Confidence (October 27), September preliminary durable goods orders (October 27), new home sales (October 27), September Advance goods trade balance (October 28), September real personal spending (October 29), Q3 GDP and September PCE Price Index (October 29).

 

Major Eurozone data include S&P Global Eurozone manufacturing, services and composite PMIs (October 23). UK's PMIs will also be released on October 23.

 

Japan's September national CPI and October preliminary PMI data will be released on October 23.  

 

Outlook

Sharp decline in gold prices on October 22 came mainly on higher oil prices, which looks somewhat overdone as the US yields fell. In addition, weak US housing data and mounting fiscal and political worries in France and social protests in several European countries provide a supportive backdrop for the meta. It appears selloff intensified on momentum selling.

 

Near-term resistance is at $4140/$4227; support is at $4000/$3930.

 

As oil prices are expected to rise further, the shiny metal may fall further, though selling aggressively at the prevailing levels without a strict stoploss should be avoided. A decisive breach of $4000 support will bring the key support at $3930 in focus.