Gold faces further losses as $3,930 support in focus: Mirae Asset Sharekhan

Disclaimer: This article is written by Praveen Singh, head of commodities at Mirae Asset Sharekhan. Views expressed are his own. Readers' discretion is advised. Gold prices retreated on October 29, surrendering earlier gains despite a weaker US dollar and declining Treasury yields, as stronger-than-expected US GDP growth reinforced concerns over a hawkish Federal Reserve. Persistent inflation and shifting interest rate expectations are adding to the pressure on the precious metal. However, escalating Middle East uncertainty, falling yields and resilient Chinese demand continue to offer support. Gold may remain under pressure in the near term, with prices likely to test support around $3,930, although aggressive selling may be premature. Performance

 

 

Spot gold surged to $4082, highest since October 23, in the wake of the FOMC's monetary policy decision as the Fed kept the benchmark rates steady. However, the yellow metal lost its altitude on October 29 even amid lower oil prices, a weaker US Dollar, and subdued US yields. Encouraging US GDP data quickened the fall in metal prices. At the time of writing this article on the night of October 29, the yellow metal was trading at $4,016, down 1.2 per cent for the day.

Gold is down 7 per cent this year as the rate cycle has turned higher. 

 

Oil and geopolitics

 

• Crude oil prices fell on October 29 on the Wall Street Journal’s report that U.S. Vice President Vance has got in touch with Iranian Security Council chief Mohsen Rezaee in a bid to restart peace negotiations, according to the Wall Street Journal. The semi-official agency Tasnim reported that Rezaee has received a letter from Vance but is yet to respond to it.
• Iran navy claimed that a non-compliant oil tanker hit sea mines on October 29. In total three tankers hit the mines in last two days.
• Iran Foreign Minister Abbas Araghchi said on Wednesday that Iran is in contact with mediators to review proposals to implement a seven-day plan with the US, though the Islamic Republic is fully prepared to defend the nation.
• Shell CEO Sawan said that oil spike does not look temporary anymore as inventory refill is required.
• Israel’s election results have been inconclusive as the PM Netanyahu and his right-wing allies are projected to secure 53 seats; thus, may fall short of majority of 61 in 120-seat Parliament. The Opposition is likely to get 47 seats, while Arab parties may win 19 seats. Wrangling over government formation may drag on for weeks or months.

 

Data roundup

 

• US data dump on October 29 showed that 3Q GDP grew at a solid 3.4 per cent annualized rate, Vs the estimate of 3.2 per cent and the prior 2.2 per cent. The economic growth was boosted by business investments and consumer spending. Business investments climbed 12.7 per cent in Q3-- the most since 2020. Real personal spending in September cooled down from downwardly revised yet solid 0.5 per cent spending growth in August to 0 per cent, Vs the estimate of 0.1 per cent.
• Inflation rose further in September. PCE Price Index, the Fed's preferred gauge of inflation, rose 0.5 per cent m-o-m, the most since March and 3.6 per cent y-o-y, hottest since May. The inflation readings were in line with the estimates but it is a cold comfort as inflation not only remains much above the Fed’s goal of 2 per cent, it was also hotter than the August readings of 0.3 per cent m-o-m and 3.2 per cent y-o-y. Core PCE Price Index rose 0.3 per cent m-o-m and 3.1 per cent y-o-y -- in line with the forecasts, but hotter than the August readings of upwardly revised 0.3 per cent m-o-m and 3 per cent August readings. 3Q personal consumption at 3.8 per cent beat the estimate of 3.4 per cent and matched the prior reading. 3Q core PCE Price Index at 2.5 per cent was hotter than the expected 2.4 per cent. Initial jobless claims fell from 195K to 194K -- the lowest since July 17. UK mortgage approvals fell to 53,443 in September, lowest in thirty-three months, as key lending rate has risen to 6 per cent from 4.8 per cent seen before the start of the Iran war in February this year.

 

Central Bank Watch

 

• Federal Reserve: As anticipated, the Fed left the funds rate unchanged at 3.75 per cent-4.00 per cent in its FOMC monetary policy concluded on October 28 but the decision carried a modest hawkish undertone. Lisa Cook and Beth Hammack dissented in favour of a 25-bp hike, while the Fed continued to characterize inflation as elevated. The assessment of economic activity was upgraded to a “strong pace,” with the Fed highlighting resilient domestic spending, strong productivity growth and robust capital investment. Overall, it was a balanced monetary policy decision.
• Bank of Canada: On October 28, the Bank of Canada hiked the benchmark rate by 25 bps to 2.5 per cent as it revised its inflation forecast for 2027 higher from 2 per cent in forecasted in July to 3.1 per cent. It was the first interest rate hike in three years. The Bank warned that further rate hikes could be needed to stop high energy prices from broadening out.  
• As expected, the European Central Bank left the deposit rate unchanged at 2.5 per cent in its monetary policy concluded on October 29 as the Bank flagged downside risk to growth and upside risk to inflation due to high energy prices. German bunds gained as the Bank said that tight financial conditions will weigh on economic growth and inflation.
• ECB's President Lagarde will step down in February 2027, months earlier than the end of her tenure. She has been tipped to seek a leadership role at the World Economic Forum.
• The Bank of Japan is expected keep the benchmark rate steady at 1.25 per cent in its monetary policy meeting on October 30. 

 

Fed rate hike odds

 

Probability of the US Federal Reserve hiking rates in December stands at 80 per cent. Market participants see the Central Bank hiking rates 2.6 times in a year, which is much lower from nearly 4 hikes seen around five weeks back.

 

Dollar Index and yields

 

The US Dollar Index did not gain any upward traction from the FOMC's monetary policy decision as yields sank. The Index, at the time of writing this article, was hovering around 102, down 0.2 per cent for the day as it fell for the second straight day.

Two-year yields fell for the second consecutive day. Twos at 4.66 per cent were down 3 bps for the day, Support is at 4.41 per cent. Ten-year yields at 4.99 per cent were down 2 bps. Support is at 4.78 per cent.

 

Gold ETF

 

• Global gold ETFs attracted inflows for the first time after four consecutive days of outflows. Holdings edged higher to 101 Moz on October 28.
• ETF holdings are presently 63.75 tons up (2.07 per cent) YTD and are up nearly 2.50 tons since the start of the Iran war.
• Investors have sold nearly net 17.5 tons of gold through ETFs since October 21.

 

Gold-silver ratio

 

Gold-silver ratio rose nearly 1.5 per cent to 76.57 on Thursday as silver has been falling more than gold. The ratio can rise to 84 in the coming days.

 

Russia’s gold reserves fall

 

Ukraine’s Foreign Intelligence Service reported that as Russia is drawing down its gold reserves to cover a widening budget deficit, the Russia’s gold holdings fell for the tenth straight month; reserves in September declined 6.2 tons to the lowest level since late 2019.

 

China’s gold market

 

China's gold market continues to demonstrate resilience. September imports rose 34 per cent year-over-year to 144.9 tons, a three-month high, while year-to-date imports reached 1,286 tons, up 67 per cent from the same period last year.

 

Upcoming data

 

Next week will be crucial for financial markets as US October ISM manufacturing (Nov. 2), September JOLTs job openings (Nov. 3), September final Durable goods orders (Nov. 3), October ADP employment change (November 4), October ISM services (Nov. 4), October nonfarm payroll (November 6) and Nov. preliminary University of Michigan sentiment and inflation expectations (Nov. 6) will be released. 

Outlook

 

• Momentum selling and uncertainty ahead of the US midterm elections are outweighing the supporting factors like sharp decline in US yields in last two weeks and shaky AI sector.
• We held mild bullish view on the metal this week; however, the stellar US GDP data is likely to intensify the downside pressure on the metal. The yellow metal may trade with a downward bias and test the crucial support around $3930. Next major support comes in at $3885-$3900. Resistance is seen at $4100/$4150. At the same time, we note that multiple factors like sharply falling yields, concerns over AI shares, decline in real yields and strong Chinese demand support the metal; thus, aggressive selling should be avoided.