Gold strategy on February 21: Support at Rs 84,800, Resistance at Rs 87,770

Gold – Seen slightly weaker as the US unlikely to revalue its gold reserves

  Performance

 

Spot gold closed with a gain of around 0.20 per cent at $2940 on Thursday. The metal slipped after hitting a fresh record high of $2955 as the US Treasury Secretary Bessent doused the hopes of revaluation of the US gold reserves; however, weaker US Dollar and softer US yields cushioned the decline.

 

Data roundup

 

The US data released on February 20 were mixed as Philadelphia Fed business outlook at 18.1 was better than the expected reading of 14.30 but decline from the prior reading was quite steep. Weekly job report was slightly disappointing as both continuing claims and initial jobless claims were higher than expected.

 

US data continue to disappoint as downside surprises rise: ISM services, retail sales, NAHB housing Index and housing data have trailed their respective estimates.

 

FOMC minutes: The Federal Reserve (Fed) Minutes for the January 29 policy showed that the members did not see any rush for rate cuts as economy is doing well and is running at nearly maximum unemployment. Some members noted that it may be appropriate to consider pausing or slowing the balance sheet runoff due to debt ceiling issues.

 

Geopolitics watch

 

Ukraine peace initiatives remain in focus, though geopolitical concerns have come to fore once again as after President Trump called Zelenskiy a dictator, urging him to step down otherwise he risks losing his county. He alluded that Ukraine started the war with Russia.  READ: Silver trading strategy: Check Support, Resistance, other key levels here

 

Tariffs

 

President Trump said he will announce tariffs on cars, semiconductors, chips, pharma and probably lumber as soon as the next month as he is looking at a 25 per cent tariff on lumber and forest products. There was some respite on tariff front as he said on February 20 that a new trade deal with China is possible.

 

ETF

 

Total known global gold ETF holdings stood at 83.853 MOz as on February 19. The ETFs have recorded inflows for three straight weeks, a positive development for the metal. The net inflows are up by around 1 MOz YTD.

 

COMEX gold inventory

 

COMEX gold inventory continues to rise on delivery demand. At 37.983Moz the COMEX gold inventory is at the highest level since March 2021. Bank of England is seeing biggest outflow in gold since 20212 January as 8145 gold bars out of 420K bars had been moved out in January. However, as per Bloomberg, London-New York arbitrage window opportunity is closing as New York premium has fallen to $10, a more normal level.

 

Gold shipments from Singapore to the US reached around 11 tons -- a three-year high.

 

Upcoming data

 

Today’s US data include S&P PMIs (February prel.), University of Michigan sentiment (February final) and inflation expectations (February final).

 

Walmart’s warning

 

The World’s largest retailer was gloomy in its profit and revenue guidance due to inflationary concerns.

 

Fedspeak

 

Fed's Barr (Vice Chair supervision) urged to implement international capital standards as he called for strong bank regulation and supervision against potential shocks. Fed's Musalem more progress is needed to ensure that inflation is returning to the 2 per cent target before further policy changes. He added that so far there is no plan to change the Fed balance sheet drawdown. Fed's Bostic said that uncertainty is widespread and sees two interest-rate cuts this year, inflation data has been bumpy though.

 

US Dollar and yields

 

The US Dollar Index fell 0.76 per cent to close at 106.36 on a possibility of new trade deal with China and the FOMC minutes showing that the Fed may reduce the QT pace. The ten-year US yields at 4.50 per cent were down nearly 3 bps. 

 

Outlook  As the latest sets of the US data have been mostly disappointing amid elevated inflation, markets are slowly becoming concerned about stagflation. Inflationary concerns may delay rate cuts. Bessent negating the idea of the US gold reserves revaluation for sovereign wealth fund is negative for the metal. Decline in the New York premium over London to more normal levels is yet another point of caution for gold bulls. At the same time, weaker Dollar, geopolitical concerns over Ukraine peace process, economic and political concerns due to Trump’s tariff plans and softer yields are positive for the metal. The metal may trade with a slight bearish tilt, though downside is expected to be limited. Support is at $2918 (MCX April gold Rs 85300)/$2900 (Rs 84800). Resistance is at $2955 (Rs 86400)/$3000 (Rs 87700).    (Disclaimer: Praveen Singh is associate vice president of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)