Geopolitical uncertainties favours yellow metal: Mirae Asset Sharekhan

Gold: A fresh record high on safe haven demand

 

Performance:

On March 27, spot gold rose to a fresh record high of $3,059 on safe haven demand coming on US imposing auto tariffs. A weaker dollar also boosted the yellow metal.

 

Spot gold, at the time of writing, was changing hands at $3,051, up around 1 per cent on the day. The MCX June contract at ₹89,301 was up 1 per cent.

 

Tariff development:

On March 26, the US President Trump signed an order to implement a 25 per cent tariff on auto imports, which will be effective from April 3, and will initially target fully assembled vehicles. The President threatened Canada and the European Union (EU) with more tariffs should they work together to do economic harm to the US. He said that tariffs will be permanent with no exceptions. The latest round of tariffs is further escalating tensions with US trade partners ahead of reciprocal tariffs that will come into effect from April 2.

 

 

The EU vowed to defend its economic interests as Canada called these tariffs violating the US-Mexico-Canada trade agreement.

 

Top officials from China, Japan and South Korea will meet in Seoul this weekend to seek economic cooperation to counter rising trade frictions.

 

Data roundup:

As per the final print, US gross domestic product (GDP) (Q4) rose 2.4 per cent on an annualised basis as personal consumption at 4 per cent trailed the estimate of 4.2 per cent. US Q4 GDP Price Index at 2.3 per cent (forecast 2.4 per cent, prior 2.4 per cent) and Core Price Index at 2.6 per cent (forecast 2.6 per cent, prior 2.7 per cent) were somewhat reassuring on the inflation front. 

 

Weekly job data were mixed as initial jobless claims at 2,24,000 came in below the forecast of 2,25,000 whereas continuing claims at 18,56,000 were lower than the estimate of 18,86,000. Pending home sales rose 2 per cent month-on-month (M-o-M) in February, better than the forecast of 1 per cent, but were 7.2 per cent lower year-on-year (Y-o-Y) against the forecast of a decline of 3.5 per cent (Y-o-Y).

 

US dollar Index and yields:

Ten-year US yields swung between 4.33 per cent and 4.4 per cent and were at 4.37 per cent, up about 0.75 per cent on the day. Yields are nearly 3 per cent up on the week.

 

Long-term yields are going up on investors' concerns about tariffs being inflationary. The thirty-year yields at 4.75 per cent reached the highest level since February 20. The two-year US yields at 4 per cent were down nearly 1 basis points (bps) at the time of writing this report. The Fed rate cut prospects are weighing on short-term yields.

 

The US Dollar Index was at 104.27, down around 0.3 per cent on the day as traders assessed the impact of tariffs on the US economy. The Index is slightly up on the week though. 

 

Upcoming data:

Traders will closely monitor the US core PCE Price Index data, the Fed's preferred gauge of inflation, to be released today. Apart from this data, University of Michigan Sentiment and both short-term and long-term inflation expectations (March Final) will also be crucial as the sentiment has slumped to the lowest since November 2022, whereas long-term inflation expectations are at the highest since 1993.

 

Germany's unemployment change (March) and EU's consumer confidence will also influence commodities to some extent.

 

ETF:

Total known global gold ETF holdings fell for the first time in 12 days and stood at 87.746MOz as on March 26. Nonetheless, gold ETF holdings are at the highest since September 2023 and are up nearly 6 per cent year-to-date (Y-T-D).

 

The ETFs have recorded inflows for eight straight weeks with major buying coming from North America.

 

COMEX gold inventory:

COMEX gold inventory at 42.936MOz remain at all-time high on delivery demand.

 

Outlook:

Elevated economic uncertainties and worsening global trade scenario continue to remain supportive for the metal. ETF inflows also continue to support the metal.

 

Although, of late, the US data viz existing home sales, industrial production, weekly job data, etc., have been somewhat comforting, investors continue to remain concerned over the impacts of trade wars on the global economy. Traders will closely keep a tab on fresh tariff developments ahead of the reciprocal tariffs which will come into effect on April 2.  Short-term US yields remain depressed on rate cut prospects as markets expect the Fed to start cutting rates from June. Odds of a June rate cut stand around 65 per cent.

 

The yellow metal is likely to trade with a positive bias as traders eye $3,100 in near term. Support is at $3,023 (MCX Gold June ₹88,480)/$3000 (₹87,800).

 

**MCX gold rates have been calculated at USDINR spot rate of Rs 85.67.  (Disclaimer: This article is by Praveen Singh – associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)