Gold strategy on February 5: Support at Rs 82,450; Resistance at Rs 85,000

Gold: Extending its rally on weaker Dollar and softer US yields

 

Performance

 

Buoyed by weaker Dollar and softer US yields, spot gold extended its winning streak to the fourth straight day on February 4 as it hit a fresh record high of $2,845.51.

 

China, in retaliation to Trump's 10 per cent tariffs, imposed tariffs on the US goods worth $14 billion. These goods include LNG, crude oil, farm equipment and natural gas. China also decided to control exports of critical commodities like tellurium, molybdenum, etc.

 

Despite the China-US tariff stand-off, risk appetite was healthy after postponement of tariffs on Canada and Mexico after agreements on border control and trade.

 

Spot gold posted its fifth consecutive weekly gain in the week ended January 31. It is up around 9 per cent YTD.

 

The metal was trading at $2,844 at the time of writing this report. The MCX April gold contract at Rs 83,746 was up around 0.56 per cent.

 

Data roundup

 

The US JOLTs openings (December) data, released on Tuesday, showed that job openings fell to 7.6 million in December from 8.16 million in November, lowest since September, though hiring held at 3.4 per cent, still around the lowest in a decade, while quit rate was steady at 2 per cent. Factory orders (December) came in at -.9 per cent (forecast -0.8 per cent), whereas durable goods orders (December final) at -2.2 per cent matched the forecast.

 

S&P US Global manufacturing PMI (January final) came in at 51.2 (forecast 50.10) whereas the US ISM manufacturing (January) with a reading of 50.90 (forecast 50) shot back into the expansion zone for the first time after 26 straight months of contraction. ISM prices paid at 54.90 were hotter than the estimate of 54.2 as ISM employment showed expansion with its reading of 50.30 topping the forecast of 52. Even new orders topped the estimate.

 

Upcoming data

 

Today's US data include ADP employment change (January), trade balance (December), S&P global US services PMI (January final) and ISM services Index (January).

 

US Dollar and yields

 

The 10-year US yields continue to swing largely between 4.50 per cent and 4.60 per cent. The yields, at the time of writing this report, were at 4.52 per cent, down nearly 2 bps on the day, as bond rallied on lacklustre US JOLTs openings data. The two-year yields have been moving largely in the 4.20 per cent-4.30 per cent since mid-January. The yields at 4.21 per cent were down around 1 per cent on the day.

 

The US Dollar Index, after surging to 109.88 on February 3 on trade war concerns, the highest level since January 13, has eased below 108 as tariffs on Canada and Mexico have been delayed by at least a month. The Index at 107.99 was down nearly 1 per cent on the day.

 

ETF 

Total known global gold ETF holdings as on February 3, stood at 83.44MOz -- the highest since January 21. Gold ETFs have recorded a net inflow of around 0.60 MOz YTD.

 

Outlook  Gold rally is being driven more by subdued yields and US Dollar Index rather than safe haven demand. The metal was sharply lower in the Asian session on Monday when the US Dollar Index rallied above 109 level as Trump imposed 25 per cent import duty on Canada and Mexico. There are not many concerns regarding the US-China tariff tiff. The US equities benchmark Indices of NASDAQ and S&P 500, despite the DeepSeek induced turmoil episode, are within the striking distance of their all-time highs.

 

Markets think that China tariff issue will also be resolved/shelved at least temporarily. China’s tariff gambit is a calculated move as tariffs are levied on US goods worth merely $14 billion.

 

Gold may extend its rally further with Rs 85,000 as the next major target; however, it is looking expensive, so caution is warranted.

 

Today’s US data, ISM services and ADP employment change, will be crucial for the metal.

 

Support is at $2,800 (Rs 82,450)/$2779 (Rs 81,800). Resistance is at $2,850 (Rs 83,900)/$2,888 (Rs 85,000).

 

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