How to trade Gold today? Praveen Singh of Mirae Asset Sharekhan suggests

Gold – A fresh record high before backing off as Dollar gains

 

Performance:

On March 20, spot gold hit a fresh record high of $3,057 in the wake of the Federal Open Market Committee (FOMC) monetary policy decision as the Fed slashed the growth forecast and revised its inflation and unemployment rate forecasts higher for 2025.

 

Spot gold was trading at $3,039, down around 0.25 per cent on the day, at the time of writing. The MCX Gold April contract at ₹88,700 was up around 0.1 per cent.

 

FOMC:

As expected, the US Federal Reserve kept the Fed Fund rate unchanged in the 4.25 per cent-4.50 per cent range.

 

As per its new summary of projections, gross domestic product (GDP) growth rate is likely to slow down from the previous estimate of 2.1 per cent to 1.7 per cent in 2025. The Central Bank revised its core PCE deflator inflation estimate higher from 2.5 per cent to 2.80 per cent as it sees unemployment rate also edging higher from its previous forecast of 4.3 per cent to 4.4 per cent. The central bank noted economic uncertainties due to Trump’s tariff plans and said there is no rush to move on rates, though it may act should the job market weaken. The pace of quantitative tightening (QT) will be reduced from $25 billion per month to $5 billion in treasury holdings from April 1. The Bank signalled two rate cuts this year.

 

Markets initially took a slower QT pace and rate cut signal despite elevated inflation to be positive but soon became sceptical about the rate cut possibility as inflation is still elevated and the US economy is doing well.

 

A relook at the US FOMC decision boosted the US Dollar and pushed gold prices lower. 

 

Data roundup:

US data released on Thursday alleviated recession concerns to some extent. Weekly jobless claims (March 15) came in at 2,23,000 (prior 2,20,000), slightly less than the forecast of 2,24,000, though continuing jobless claims at 18,92,000 were slightly higher than the forecast if 18,87,000. Philadelphia Fed Business Outlook (March) fell from 18.1 to 12.50 but topped the estimate of 9. Leading Index (February) at -0.3 per cent was a tad worse than the estimate of -0.2 per cent but the prior data was revised higher from -0.3 per cent to -0.2 per cent. Existing home sales (February) rose from 4.09 million to 4.26 million, highest since March 2023.

 

Germany's producer price index (PPI) (February) declined 0.2 per cent month-on-month (M-o-M) as against the forecast of an increase of 0.2 per cent as even y-o-y reading at 0.7 per cent trailed the estimate of 1 per cent.

 

UK's monthly job report (January) was largely positive as ILO unemployment rate 3 months matching the forecast held at 4.4 per cent as employment change 3M/3M at 1,44,000 topped the estimate of 91,000. Jobless claims change rose from 22,000 to 4,42,000. Payrolled employees monthly change (February) at 21,000 showed an improvement over the prior data of 9,000 and was better than the estimate of -21,000. Average weekly earnings 3M/ year-on-year (Y-o-Y) at 5.8 per cent matched the forecast, though it was slower than the prior data of 6.1 per cent.

 

Upcoming data:

No major data is scheduled to be released today. The major US data on the card next week include manufacturing and services purchasing manager's index (PMIs) (March preliminary), new home sales (February), Conference Board consumer confidence (March), durable goods orders (February prel.), the final reading of 4Q GDP, GDP price index and pending home sales.

 

US dollar index and yields:

The US Dollar Index was noted at 103.88 at the time of writing, up around 0.4 per cent on the day, as markets became sceptical over the possibility of the US Fed rate cuts due to the US economy doing reasonably well amid elevated inflation.

 

The ten-year US yields swung between 4.17 per cent and 4.25 per cent and were steady at 4.24 per cent at the time of writing this report. Yields recovered on the comforting US housing data. Nonetheless, 10-year yields are still down nearly 2 per cent on the week.

 

ETF:

Total known ETF gold holdings fell for the first time on March 19 after seven consecutive days of net inflows and stood at 86.92MOz, highest since October 2023 and up nearly 5 per cent this year.

 

COMEX Gold inventory:

COMEX gold inventory continues to surge on delivery demand and at 41.447MOz are at a record high.

 

Shanghai gold premium:

Shanghai gold premium at $3.24/Oz has reached a 10-day high.

 

Outlook:

While outlook for gold continues to be constructive in near term on ETF inflows, tariff-induced economic concerns, and geopolitical worries (especially in the Middle East), the metal may consolidate its gains for a while. 

 

The Fed’s assessment of the US economy and Thursday’s US data are likely to support the US Dollar and yields in the short term. However, the overall outlook for the yellow metal is positive. It is likely to reach the $3,200 (MCX April Gold contract ₹93,000) level in the coming months. Support is at $3,022 (MCX April contract ₹88,200)/$3,000 (₹86,800)/$2,975. Resistance is at $3,057 (₹89,200)/$3,100 (₹90,400).   (This article is by Praveen Singh – Associate VP, fundamental currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)