Gold outlook: Range-bound with bearish bias; check support, resistance

Gold price outlook: Spot gold traded with a bearish tilt as oil prices rose yet again on supply concerns emanating from the Hormuz issue. The yellow metal, which posted a weekly gain of 1.67 per cent in the week ending April 17, its fourth straight weekly gain, continues to take its clues primarily from oil prices, the dollar, and yields.

 

At the time of writing this article, the metal was trading with a loss of 0.25 per cent at $4728 as it managed to find support around a key level of $4668 yet again.

 

Geopolitics and oil

 

US President Donald Trump has ordered the shooting of the boats placing sea mines in the Strait of Hormuz. Despite the US calling for peace talks, Iran has not shown any willingness to negotiate as the US blockade continues. In addition, handing over the enriched Uranium pile remains the most crucial point of contention.

 

 

Fatih Birol, the head of the International Energy Agency (IEA), comparing the oil and gas supply crunch from the closure of the Strait of Hormuz with energy supply crises in 1973, 1979, and 2022, warned that the current energy crisis precipitated by the conflict in West Asia is worse than any in recent history, and its impact will deepen the longer it goes on.

 

Data roundup

 

US data released on April 23 were largely encouraging, as although jobless claims at 214K were a touch higher from the prior data (208K) and the estimate (210K). S&P global US manufacturing PMI jumped from 52.30 to 54 in April as even the services PMI improved from 49.8 to 51.30 (forecast 50.60).

 

Earlier, UK CPI inflation was 3.3 per cent in March, up from 3 per cent in February, due to rise in fuel costs driven by the surge in oil prices as the cost of filling up at the pump rose by 8.7%. US March retail sales surged by the most in more than a year as gas prices jumped.

 

Dollar index and yields

 

At the time of writing this article, the US dollar index was at 98.05, down by 0.05 per cent for the day. Both 2-year and 10-year yields were largely steady at 4.29 per cent and 3.8 per cent, respectively.

 

ETF and COMEX inventory

 

As of April 22, total known global gold ETF holdings stood at 98.95 MOz, steady YTD, down by 1.97 MOz since Iran war broke out on February 28. Registered COMEX gold inventory at 15.66 MOz is down by 35.4 per cent from the record peak of 24.25 Moz.  

COMEX gold delivery data show subdued delivery in March-April period.

 

Upcoming data and events

 

Major US data on tap in near term include University of Michigan sentiment and inflation expectations (April 24), ADP weekly employment change (April 28), Conference Board consumer confidence (April 28), real personal spending (April 30), PCE Price Index (April 30) and Q1 annualized GDP (April 30). PCE Price Index, Fed's preferred inflation gauge, is expected to see a sharp rise in inflation from 2.8 per cent in February to 3.5 per cent in March due to a surge in oil prices on the Iran war.

 

The US Federal Reserve will deliver its monetary policy decision on April 29 wherein it is expected to keep the rates unchanged at 3.5-3.75 per cent. However, investors will look for clues to possible rate path in future as surge in inflation has made the global central banks vigilant against the inflation risk.

 

The Bank of England will announce its monetary policy on April 30 and is expected to keep its benchmark rate unchanged at 3.75 per cent.

 

Nonetheless, investors will seek clues to future rate path as inflation is picking up. The ECB's policy decision is due on the same day, and the central bank is expected to stand pat on the key rate. Before that the Bank of Japan will convene its monetary policy meeting on April 28. The central bank is widely expected to keep the benchmark rate steady at 0.75per cent.

 

However, market participants expect the Bank of Japan, the ECB, and the BoE to hike rates by 2.3, 2.35 and 2.17 times by the year-end. The Fed is expected to deliver 0.30 rate cuts by the end of the year-end.

 

Gold price outlook

 

Inflation concerns and reduced Fed rate cut probability continue to keep the metal under pressure. The moves are almost consistently inversely proportional to the crude oil moves. The upcoming FOMC meeting will be crucial in light of the increase in inflation as oil supply concerns are elevated.

 

The metal needs to climb above $4,792 to negate some of its selling pressure. The next major resistance is at $4850. The key support is at $4600, as interim support kicks in at $4668.

 

Gold is expected to range trade with a bearish bias with a possible test of $4600 unless the US and Iran make material progress towards resolving the conflict through diplomatic channels. 

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(Disclaimer: This article is written by Praveen Singh, head of commodities, Mirae Asset Sharekhan. Views expressed are his own.)