Gold rally to continue? Upside to be limited as risk-on sentiment kicks in

As traders remain hopeful about further improvement in the global trade scenario, upside in the metal may be limited in the near term, says Praveen Singh

Gold- Recovery on a fall in US yields

Performance:

On May 15, spot gold extended its decline to $3121 in the Asian session as easing trade tensions continued to weigh on the yellow metal. It recovered in the European and the US sessions; the recovery gathered pace as the US yields fell on benign US PPI data (April) and disappointing US industrial production (April) and NAHB Housing Market Index (May).

 

Spot gold recovered more than $100 from its day's low and was trading at $3219, up nearly 1.20 per cent on the day, at the time of writing this report.

 

 

The MCX June contract was changing hands at ₹93,170, up around 1 per cent on the day. 

Data roundup:

US data released Thursday were mostly disappointing. Empire manufacturing (May) came in at -9.2 Vs the forecast of -8 as the Index contracted for the third straight month. US Retail Sales advance (April) at 0.1 per cent topped the estimate of 0 per cent, though the prior data was revised higher from 1.4 per cent to 1.7 per cent. Retail sales ex auto and gas at 0.2 per cent trailed the estimate of 0.3 per cent; however, the period data was revised higher from 0.8 per cent to 1.1 per cent. 

 

Retail sales control group came in at -0.2 per cent versus the estimate of 0.3 per cent as the prior data was revised higher from 0.4 per cent to 0.5 per cent. PPI final demand (April) at -0.5 per cent mm-o-m was way below the median forecast of 0.2 per cent, though the previous estimate was revised higher from 0.4 per cent to 0 per cent.PPI final demand rose 2.4 per cent y-o-y, slightly faster than the forecast of 2.5 per cent as the previous data was revised higher from 2.7 per cent to 3.4 per cent. 

 

Core PPI fell 0.1 per cent m-o-m versus the estimate of a 0.3 per cent rise as the prior data was revised higher from 0.1 per cent to 0.2 per cent. Core PPI rose 3.1 per cent, which was in line with the expectation; however, once again the prior data was revised sharply higher from 3.3 per cent to 4 per cent. Weekly job report was mixed as continuing claims rose less than expected whereas initial jobless claims at 229,000 were slightly higher than 228,000. Philadelphia Fed Business outlook (May) came in at -4, slightly better than the expected figure of -11. Industrial production contracted for the first time in six months, whereas NAHB housing market index (May) tumbled from 40 to 34, lowest since November 2023. 

Trade developments:

Chinese Vice Premier He Lifeng, during his visit to Paris for the 10th China-France High Level Economic and Financial Dialogue, said that China and France oppose unilateralism and support the multilateral trading system.

 

The EU is revising its trade proposal for a potential trade deal with the US, which would provide more details on ways to lower trade and non-tariff barriers. It is to be noted that Trump quipped earlier this week that it is in many ways nastier than China.

 

Trump, without providing many details, said that Indian has offered to remove all tariffs on US goods.

Fedspeak:

Fed Chair Powell at the FOMC 2025 review on Thursday said that longer-term interest rates are likely to remain due to economic volatility. He added that policymakers are weighing changes to key parts of the framework that guides monetary policy decisions, including how they think about US employment shortfalls and approach their inflation target as the current framework was designed at a time of persistently low interest rates and low inflation.

 

US Federal Reserve Governor Michael Barr said supply chain disruptions may boost inflation.

US Dollar and yields:

The ten-year US yields backed off after rising to almost 4.55 per cent. At the time of writing, ten-year US yields were 4.45 per cent, down nearly 2 per cent on the day, as traders boosted bets on Fed rate cuts following soft PPI and disappointing US NAHB and industrial production data. Similarly, 30-year yields almost touched 5 per cent before easing to 4.91 per cent, down around 1 per cent on the day. The US Dollar Index at 100.92 was down around 0.10 per cent on the day as US yields eased. 

ETF:

Total known global gold ETF holdings stood at 88.709MOz as on May 14, around 1.2 per cent lower than the peak of 89.773MOz observed in April, as holdings are on a track of a fourth straight weekly decline. However, holdings are still around 7 per cent higher YTD.

COMEX gold inventory:

COMEX gold inventory at 390MOz is down nearly 13 per cent from the peak level of 45.072MOz as on April 4.

Upcoming data:

Today's major data on cards include US housing starts, Import Price Index and University of Michigan sentiment and inflation expectations.

Outlook:

As traders remain hopeful about further improvement in the global trade scenario, upside in the metal may be limited in the near term. For gold, at the current level, tariff discord matters more than a slightly weaker Dollar or slightly lower yields. 

 

In the absence of further escalation of trade war or geopolitical issues, the yellow metal is likely to trade with a bearish bias in the short term. Gold faces a strong resistance at $3275 (MCX Gold June ₹94,700), followed by $3300 (₹95,500). Support at $3155 (₹9,400) is likely to be tested once again, a breach of which will put the next major support at $3100 (₹89,700) in focus. 

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