Gold prices to trade with bullish bias till trade war recedes: Analyst

Gold rate today: Buy Gold on dips. Gold support is at $2900 (MCX April gold contract Rs 85,600)/ $2868 (Rs 84,700)

Gold - Up for the second day as trade war intensifies

 

Gold Performance:

 

Spot gold surged for a second consecutive day on March 4 on safe haven demand and sliding US Dollar as trade war intensified with the US President Trump's tariff plans coming into effect, and China and Canada imposing levies on the US goods in retaliation.

 

Spot gold traded at $2912, up around 0.70 per cent yesterday. The MCX Gold April contract was at Rs 86,015, up around 0.74 per cent.

 

Tariff developments:

 

US President Donald Trump has imposed 25 per cent tariffs on most of the Canadian and Mexican imports and levied an additional 10 per cent tariffs on China, which will affect around 1.50 trillion in annual imports. Canadian energy produce will be taxed at 10 per cent. 

 

 

Canada, however, has hit back with phased levies on $107 billion worth of US goods whereas China has imposed tariffs of as high as 15 per cent, which will be mainly on the US farm goods. Mexico is set to announce tariffs and other measures on March 9. Trump has indicated more tariffs including reciprocal tariffs in April on all US trading partners that have tariffs and other barriers on US goods. Besides that, a 25-per cent tariff will be imposed on the European Union as tariffs on imports of copper and aluminum are being investigated.  Also Read: Silver may remain choppy amid Trump-led tariff war: Mirae Asset Sharekhan

 

Data roundup:

 

The US ISM manufacturing (January), released on March 3, came in at 50.30; thus, falling short of the estimate of 50.70. Internals were disappointing as ISM new orders and employment contracted whereas price paid jumped from 54.90 in December to 62.40 (forecast 56). The ISM data is yet another data in the string of disconcerting US data off late.

 

The Eurozone unemployment rate (January) came in at 6.3 per cent versus the estimate of 6.2 per cent, whereas the prior data was revised higher from 6.2 per cent to 6.4 per cent. CPI (February preliminary) inflation rose 2.4 per cent Y-o-Y in February as against the forecast of 2.3 per cent, though it slowed down from 2.5 per cent in December.

 

The Fed Rate cut bets:

 

Traders expect the US Federal Reserve to cut rates thrice this year as they see more than 75 per cent chance of the Fed cutting rates in June.

 

Gold ETF:

 

Total known global gold ETF holdings at 85.804, as on March 3, are at the highest level since December 2023 and are up around 5 per cent Y-T-D. The holdings have risen for five consecutive weeks on meteoric rise in gold prices.

 

COMEX gold inventory:

 

COMEX gold inventory surged to 39.414 MOz, a four-year high on March 3, on strong delivery demand. COMEX gold inventories have risen every week since December 6.

 

Gold lease rates:

 

Lease rates for borrowing gold in London have come down to nearly zero, a normal level, after rising to a multi-decade high in January.

 

COMEX gold premium over spot gold:

 

The COMEX gold premium over the spot gold price has come down to $10, from about $60 in January.

 

US Dollar and yields:

 

The US Dollar Index slumped to 105.87, a three-month low, on Fed rate cut bets and was noted at 106.11, down nearly 0.60 per cent on Tuesday.

 

The ten-year yields sank to 4.1 per cent, the lowest since October 21, and were at 4.18 per cent, up around 3 bps yesterday. The two-year yields fell 2 bps to 3.92 per cent, reflecting bull steepening, on growing US recession risks as the 2–10-year yield spread widened to 26 bps, the highest since February 12.

 

Upcoming data:

 

Traders will monitor US ADP employment change (February), S&P Global US services PMI (February final), factory orders (January), durable goods orders (January final) and the crucial ISM services (February) to be released today.

 

The European Services and composite PMIs (February final) will also be on traders' radar.

 

Upcoming events:

 

The European Central bank will announce its monetary policy on March 6 and is expected to cut deposit rate facility and main refinancing rate by 25 bps to 2.5 per cent and 2.75 per cent, respectively.

 

The third session of 14th National Committee of the Chinese People's Political Consultative Conference, that has started on March 5, will continue until March 10. The Chinese authorities have set the official budget deficit target to around 4 per cent, the highest in over three decades, as the government is focusing on boosting domestic consumption and investment in high-tech manufacturing. The fiscal gap will be around 12 trillion Yuan, which may enable the nation to achieve a growth target of 5 per cent. It is to be noted that consumption contribution to GDP growth is below 45 per cent -- the lowest since 2006 as household spending remains anaemic amid real estate slump and weak job market.

 

Gold Outlook:

 

Decline in gold lease rates and shrinking premium of COMEX gold over spot gold are somewhat negative developments for gold prices. However, gold is expected to attract safe haven flows on safe haven demand amid intensifying trade war. In addition, a weaker US Dollar Index and slumping US yields on disappointing US data are also likely to lend support to the metal.

 

The metal is likely to trade with a bullish bias unless and until trade war cools down. Dip buying is a preferred strategy.

 

Gold support is at $2900 (MCX April gold contract Rs 85,600)/ $2868 (Rs 84,700), whereas resistance is $2930 (Rs 86,500)/ $2956 (Rs 87,300).

 

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Disclaimer: Praveen Singh is associate vice president of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.