Gold trading strategy: Yellow metal may hit Rs 71200 if US yields hold 4.5%

Gold outlook: Gold continues to see a buying support into the dips around $2,300. Support is at $2,352/$2,325/$2,317

Gold: Rising US yields pose a downside risk

Performance:

Commodities, after undergoing a short-lived correction on hawkish Fed at the end of the last week, are trying to stabilise ahead of the much awaited and crucial US PCE deflator data due Friday. The yellow metal has been gaining upward traction on slightly softer than expected University of Michigan consumer inflation expectations data (both short term and long term), released Friday. 

Spot gold was changing hands at $2357 when the MCX closed and was down around 0.30 per crnt on the day as it rose for the second consecutive day. The MCX June contract, at Rs 72,155 (LTP) was up 0.20 per cent.

Data round up:

US data released Tuesday were mixed. FHFA House Price Index (March) rose 0.10 per cent M-o-M versus the expectation of 0.50 per cent. The Conference Board Consumer Confidence recorded its first rise in four months and was noted at 102 versus the expectation of 96.   

Dollar and yields:

The US Dollar Index was steady at 104.57 at the time of the MCX closing. The ten-year yields perked up post-Consumer data to 4.54 per cent, up 1.50 per cent on the day. The catalysts for a decline in the bonds were hawkish Fedspeak and better than expected US Conference Board Consumer Confidence data. 

Geopolitical watch:

An Egyptian soldier got killed in a clash with Israeli troops at a Gaza border crossing on Monday. In addition, an Israeli airstrike Sunday at a tent camp northwest of Gaza, killed an estimated 45 Palestinians, which has stirred up regional tensions. Israeli Prime Minister Benjamin Netanyahu called the airstrike Sunday a “tragic mistake” amid growing international condemnation.

Fedspeak: slightly hawkish

Federal Reserve Bank of Minneapolis President Neel Kashkari said policymakers should take their time in monitoring whether inflation is slowing enough to warrant interest-rate cuts. He cautioned that a rate hike was not entirely ruled out, which led to a decline in the US treasuries.  

ETF:

Total known global gold ETF holdings edged lower to 80.593 Moz on May 27 from 80.686 Moz at the end of the last week.

Upcoming data:

The major US data to be released this week include Fed Beige book, US GDP (Q1 second estimate), goods trade balance (April advance), weekly jobless claims, pending home sales (April), personal income (April), personal spending (April) and PCE deflator inflation data (April). 

Outlook:
 

Gold continues to see a buying support into the dips around $2,300. Support is at $2,352/$2,325/$2,317. Resistance is in $2,378-$2,385 zone (Rs 72,800-Rs 73,000) followed by $2,400 (Rs 73,400). The US ten-year yields shooing higher past 4.51 per cent is a negative development for the metal.

A decline to $2,325 (Rs 71,200) is possible in the near-term should the yields do not back down soon. At the same time, traders will keep on buying the dips near $2,300 ahead of the US inflation data. More so as most of the Fed members are not leaning towards a rate hike.  

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Disclaimer: Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.