Gold outlook: Analyst suggests 'buy on the dips'; check support, resistance

Praveen Singh, head of currencies and commodities at Mirae Asset Sharekhan, has shared his outlook for the yellow metal

Gold: Investors look forward to Powell’s speech

Performance

On August 21, spot gold traded between $3,325 and $3,352 as investors bid time ahead of the US Fed Chair Powell's speech at Jackson Hole. The yellow metal at the time of writing this article, was changing hands at $3,340, down 0.20 per cent for the day. MCX October gold contract at Rs 99,472 was up 0.17 per cent for the day.

Geopolitical watch

Geopolitical tensions over the Ukraine situation are once again in focus as Russia insisted it must have a veto over any postwar support for the country. Adhering to a tough stand over the Ukraine war, Russia’s foreign minister Lavrov said European proposals to deploy troops in Ukraine after a settlement would amount to foreign intervention, which is unacceptable to Russia. He, in fact, laid stress at returning to discuss a framework first proposed during the initial peace talks held in Istanbul in 2022, under which Moscow and Beijing would help guarantee Ukraine’s security alongside European allies; however, Kyiv considers this proposal as unacceptable.

 

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Meanwhile, the US President urged Ukraine to increase its offensive against Russia as Russia launched a severe missile attack on Ukraine on August 21.

Data roundup

The US data released on Thursday were mixed. The weekly job report suggested a weakening job market as initial jobless claims jumped from 224K to 235K (highest level since June) Vs the forecast of 225K, while continuing claims rose to 1.997 million in the week ending August 9, the highest since November 2021. Philadelphia Fed Business Outlook (August) slumped from 15.90 to -0.3  (in contraction now) and below consensus forecast of 7. August prices rose while employment fell. It is to be noted that the NY Fed services activity Index released on Monday also showed contraction. Leading Index (July) at -0.1 per cent matched the forecast. S&P global US manufacturing PMI (August prel.) surged to 53.3 Vs the forecast of 49.70 and the prior reading of 49.80. S&P Global US composite PMI rose to 55.40 from 55.10 and beat the forecast of 53.50. Existing home sales (July) at 4.01 million topped the estimate of 3.92 million.

 

Eurozone's PMIs were largely encouraging as Eurozone manufacturing at 50.50 topped the estimate of 49.50, services PMI at 50.70 trailed the estimate of 50.80 while composite PMI at 51.10 beat the forecast of 50.60.

 

UK's PMIs were also mostly positive as services PMI and composite PMIs comfortably beat the respective estimates while manufacturing PMI contracted more than expected.

US Dollar Index and yields

The US Dollar Index at 98.57 was around 0.40 per cent higher for the day as it reached the highest level since August 11 on rising yields on encouraging PMIs.

 

The 10-year yields at 4.33 per cent were up nearly 4 bps, while 2-year yields at 3.79 per cent rose more than 1 per cent.

Switzerland's gold exports to the US surge

Swiss gold exports to the US surged in July to the highest since March. The world’s biggest gold-refining hub exported almost 51 tons in July, from less than 0.3 tons the previous month. This year’s peak was in January (193 tons).

Upcoming data and event

The major event of the day is the Fed's Chair Powell speech at Jackson Hole Symposium which would commence at 7:30 PM.

Today, Japan will report its national CPI (July). Inflation in Japan continues to run much higher than the BoJ's inflation goal of 2 per cent. Germany's Q2 GDP data are also on the cards.

Gold ETF and COMEX gold inventory

As of August 20, total known global ETF holdings stood at 92.516 MOz, near two-year high, as holdings rose for the second straight week and are up 10.44 per cent YTD. 

COMEX gold inventory currently at 38.56 MOz are down over 14 per cent from the all-time high level of 45.07MOz.

Fed watch

Federal Reserve Governor Lisa Cook said that she has no intention of being bullied to step down from her position despite calls for her resignation by the Trump Administration over mortgage fraud allegations.

Outlook

Gold is consolidating as investors await the Fed Chair Powell’s speech scheduled for 7:30 PM today. Cracks in the US labour market have increased the pressure on him to cut the rates. The number of Fed officials supporting a rate cut has increased as they call for a shift in the Fed’s focus towards the job market. The massive downward revision of 258K jobs in the two-month data reflects growing weakness in the job market as the US employers created only 73K jobs in July—less than 100K jobs required to keep the unemployment rate steady. It is worth mentioning that supply side dynamics in the job market due to crackdowns on immigration is also playing a crucial role in the labour market. Powell will be in a bind as elevated inflation, running well-above the Fed’s target of 2 per cent, amid tariff shocks limits room to cut rates. Nonetheless, Powell may signal a data-dependent rate cut for September, which makes gold a buy into the dips. In addition, Ukraine related geopolitical concerns and investors worrying over the Fed’s independence are also supportive.

 

It is advisable to buy the dips with a tight stoploss. Support is at $3,313 (₹98,600)/$3,292 (₹98,000). Resistance is at $3,350 (₹99,700)/$3,375 (₹1,00,500)/$3410 (₹1,01,500). 

(Disclaimer: This article is by Praveen Singh – associate VP, fundamental currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)