Gold: Yellow metal falls on hawkish Fed; bearish ahead of US payroll data

Spot gold slid on Tuesday following a rebound on Monday as the US Federal Reserve officials continue to maintain a hawkish outlook on rates. Canada’s inflation rose more than expected, which added to the downside pressure on the metal. In addition, the possibility of a strong monthly job report is also negative for the yellow metal.

Spot gold, at the time of the MCX closing, was trading at $2,319, down 0.64 per cent on the day, while the MCX August gold contract was at Rs 71,460 (LTP). 

Fedspeak:

Federal Reserve Governor Michelle Bowman said on Tuesday that she sees several upside risks to the inflation outlook; thus, she called to keep borrowing costs elevated for some time. 

Federal Reserve Governor Lisa Cook said that it will be appropriate to reduce interest rates at some point as she expects inflation to improve gradually going forward; however, she added that the timing of rate cuts will depend on how economic data evolve and their implications for the economic outlook and balance of risks.

The US Dollar Index and treasury yields

The ten-year US yields at 4.243 per cent were up 0.12 per cent when the MCX closed; the yields recovered nearly 1 per cent from the day’s low. The US Dollar Index at 105.63 was up 0.15 per cent. 

Data round up

The US CB Consumer Confidence Index edged lower to 100.40 in June from 101.30 in May, though the Present Situation Index improved as the expectations Index fell to 73.0 from 74.9.

The June nonfarm payroll report may be a robust one - the labour market differential data within today’s US June Conference Board Consumer Confidence rose for the first time since January. 

It is to be noted that five of eight Fed surveys released this month signalled improvement in employment as the S&P Global’ s preliminary June PMI report, released last Friday, showed service sector payrolls rose to the highest level in the last five months.

While manufacturing payrolls increased at the sharpest rate in the last twenty-one months. These data suggest that the upcoming US nonfarm payroll report (June) could be a strong job report; thus, intensifying the downside pressure on gold and other commodities.

Canada’s consumer price index rose 2.9 per cent in May on a y-o-y basis, up from 2.7 per cent a month earlier, which topped the estimate of 2.6 per cent. Even on a month-on-month basis, the Consumer price Inflation index climbed 0.6 per cent, versus the forecast of a 0.3 per cent gain, and was up from 0.5 per cent in April.

ETF flows

Total known global gold ETF holdings were up for the second straight day on June 24, which took the holdings level to 80.874 Moz, though slightly lower than seen at the end of the last week.

Upcoming data:

Today’s major US data include new home sales (May); however, investors will pay more attention to the US GDP (Q1 final reading) and PCE deflator inflation data to be released on Thursday and Friday respectively.

Outlook

Gold is expected to trade with a bearish bias ahead of the key US data releases. Jump in Canadian inflation, hawkish Fedspeak, expectations of a strong nonfarm payroll report and a possibility of a firmer Dollar will keep the yellow metal under pressure. 

Support is at $2,300 (MCX August gold contract Rs 70,900 or $2,277 (Rs 70,200). Resistance is at $2345-$2350 (Rs 72,300-Rs 72,400) zone, followed by $2370 (Rs 73,000). A significant miss in the GDP data, though somewhat unlikely, and softening of the US PCE, the Fed’s preferred gauge of inflation may reduce the downside pressure.

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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.