Gold slips on strong Dollar, may range-trade in near term: Check details

Spot gold slipped from its day’s high of $2,329.98 and was seen hovering around $2,314 (MCX Gold June LTP Rs 71,146) when the local exchanges closed. It was down nearly Rs 220 on the MCX as the metal failed to capitalize on lower US yields.

A rebound in the US Dollar weighed on the metal. 

Yields and Dollar Index

The US bonds extended their Friday rally as the ten-year US yields dipped nearly 1 per cent to 4.44 per cent, whereas the 2-year yields were softer by 1.50 bps. Nonetheless, the US Dollar Index edged higher on hawkish Fedspeak.

Geopolitical watch

Situation remains tensed as Israeli forces took control of the Rafah border-crossing in Gaza; thus, increasing the possibility of an assault on the city. Although Hamas and Israel continue ceasefire talks, breakthrough is elusive as Israel is rejecting Hamas's demand that any pause in fighting will be effectively permanent.

ETF holdings

Total known global gold ETF holdings fell for the third straight day to 80.656 Moz on May 7. 

Data round up

Some volatility could be possible on the Bank of England's monetary policy decision, which is due on May 9. Next major US data is on Friday.

Central Banks continue to buy gold

According to the latest data from the World Central Bank, central banks continue to buy gold as net official purchase rose by a net 16 tonne in March. China’s Central Bank extended its buying spree to the eighteenth month as it bought 5 tonne of gold in March. The data show that State Oil Fund of the Republic of Azerbaijan bought 3 tonne of gold year-to-day.

Fedspeak

After somewhat dovish speeches from the Fed’s Barkin and Williams yesterday, we found Minneapolis Federal Reserve President Neel Kashkari to be somewhat hawkish in his speech on Tuesday as he said that inflation moving sideways raises questions about how restrictive policy is. He noted that the housing market is proving more resilient to tight monetary policy than it has been in the past, so it may be that neutral rate has been pushed higher. Dollar got a lift from his comments.

Outlook

The yellow metal is expected to range-trade in the near term as traders look for fresh cues. Geopolitical developments and yields are likely to be the major drivers in the short term. China’s central bank extending its gold buying spree is positive, though reduced quantum is somewhat negative for the metal. The metal may test $2,350-$2.360 resistance zone (Rs 72,200-Rs 72,500 on the MCX) in coming weeks. Support is at $2,300/$2,265 (Rs 70,700/Rs 69600 on the MCX). 

(Disclaimer: Praveen Singh is an Associate VP of Fundamental Currencies and Commodities at Sharekhan by BNP Paribas. Views are his own)