Gold rate outlook: Will yellow metal decline further? Analyst predicts this

Gold: Under pressure on subdued safe haven demand

Performance

On Tuesday, August 19, spot gold traded between $3,313 and $3,346. The yellow metal fell for the fourth consecutive day on subdued safe haven demand as investors become hopeful that the US Administration’s efforts to stop the Ukraine war may be fruitful. 

 

Downside pressure on domestic gold prices intensified due to continued weakness in the USDINR pair coming on positive implications of the Indian government tweaking GST rules and expectations of thawing of geopolitical tensions as the world leaders try to bring an end to the Ukraine war that has lasted for around three and a half years.   

 

In the week ending August 15, the yellow metal closed with a weekly loss of 1.76 per cent at $3,335. 

Tariff and trade

The US Treasury Secretary Bessent sees tariff revenue getting revised up substantially from $300 billion this year. He said that they will use tariff revenue to pay down US debt and bring down deficit-to-GDP.

 

Bessent said that the status quo with China is working well.

 

S&P Global said that Trump’s tariff war is speeding Beijing’s trade and investment drive into developing nations, potentially paving the way for a China-led trade order.

US Treasury Secretary on rate cuts

On Tuesday, US Treasury Sec Bessent supported the idea of a rate cut as he said that a rate cut by the Federal Reserve could facilitate a pickup in home building and keep prices down for one to two years.

Data roundup

US housing starts picked up as the US housing starts (July) came in at 1.428 million, a five-month high, Vs forecast of 1.29 million and the prior reading of 1.321 million, though building permits at 1.354 million lagged the estimate of 1.39 million (prior 1.393 million) and fell to the lowest since June 2020.

Central Bank watch

The markets are placing 85 per cent odds for a Fed rate cut in September. Fed's Michelle Bowman, who voted for a rate cut at the July meeting, said that she has not changed her views. She cited debanking as a problem in the financial system, into which the Fed will look should more cases rise.  

 

As per Reuters, 50 of 62 economists polled by Reuters said that they expect the Bank of England to further cut the policy rate by 25 basis points to 3.75 per cent this year. Economists expect inflation to peak around current levels.

Geopolitics watch

The US President Trump asked Ukrainian President Zelensky and Russian President Putin on Monday to meet face to face with him at a peace conference. However, in an interview with Fox TV on Tuesday, he said that we will let them meet first. As per Bloomberg, a summit between Putin and Zelenskiy may take place within two weeks, but the Kremlin has yet to confirm.

Upcoming data

Jackson Hope Symposium will be held from August 21 to August 23. Investors look forward to the Fed Chair Powell's speech scheduled for August 22.

 

The US data/reports to be released this week include July 30 FOMC minutes (August 20), S&P Global US PMIs (August 21), leading Index (August 21) and existing home sales (August 21). 

 

Eurozone's PMIs will be released on August 21, while Germany's 2Q final GDP will be out on August 22. Japan will release its PMIs and national CPI on August 21 and August 22 respectively. UK CPI data will be reported today.

Outlook

Gold is under pressure from geopolitical factors as traders expect that the US-driven peace efforts may lead to a breakthrough in the Ukraine war talks. A tentative rebound in the US Dollar Index following elevated CPI and PPI readings is also pressurising the metal. On the other hand, healthy ETF inflows, central banks’ demand and fiscal and economic concerns continue to support the metal. ETF holdings have risen nearly 12 per cent YTD and are at a two-year high.

 

The metal may test the support around $3,290 (MCX Gold October contract ₹97,900), though downside ahead of the Jackson Hole Symposium is likely to be limited. Interim support is at $3,307 (₹98,400), resistance is at $3,350 (₹99,700)/$3,375 (₹1,00,500). 

 

(This article is by Praveen Singh, senior fundamental research analyst- currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)