Gold outlook: Buy on dips as weak US data, trade risks support prices

Gold: Up for the fourth straight day as US ISM services stagnate

  Performance: A string of disappointing data pushed the yellow metal up for the fourth successive day on August 5. US data released Tuesday showed that ISM services almost stagnated in July as employment contracted at a faster pace while prices surged more than expected.

  At the time of writing this article, spot gold was trading at $3,389, up around 0.45 per cent for the day. MCX October Gold contract at ₹101,540 was up 0.33 per cent.

 

Data roundup: US ISM services Index (July) came in at 50.10, well short of the forecast of 51.50, as the Index fell to two-month low. ISM services prices paid surged to 69.90 as against the forecast of 66.50 as ISM services employment at 46.40 -- worst since January 2022-- contracted at a pace faster than in June (47.20). 

 

Earlier, the US nonfarm payroll report (July) showed a substantial downward revision of 258K jobs in the last two months that dragged the three-month average down from 150K jobs to merely 35K jobs – much less than the equilibrium level of 100K jobs required to keep the unemployment rate stable. 

 

Tariff developments: Brazil President Lula said that he will go to the WTO to question the Trump tariffs.

  President Trump said that US tariffs on semiconductor and pharmaceutical imports would be announced within the next week or so. Tariffs of pharmaceuticals could be as high as 250 per cent.

  Trump said he would substantially raise tariffs on India in next 24 hours. He also said that he is very close to extending trade truce with China. 

 

US Dollar Index and yields: At the time of writing this article, ten-year US yields were hovering around 4.19 per cent -- lowest since July 1, while 2-year yields were at 3.71 per cent, lowest since May 1. The US Dollar Index slid for the third straight day on disconcerting US data and was noted at 98.70, down 0.10 per cent for the day.

 

ETF: Total known global gold ETF holdings at 91.77Moz inched closer to one-year high of 91.783MOz seen on July 25. Gold ETF holdings are up 10.75 per cent YTD.

 

Shanghai gold premium: Shanghai gold premium over international spot gold improved from -$14.35 to -$7.89 on August 8.

 

Import duty on Switzerland: The Trump Administration has levied a steep tariff rate of 39 per cent on exports from Switzerland, however, there is no duty on gold. It is to be noted that Switzerland, the world's largest gold refining hub, exported more than $36 billion worth of gold to the US that accounted for more than two-thirds of Switzerland's trade surplus with the US in the first quarter as trade₹sought to capitalize on arbitrage between COMEX and spot gold prices when COMEX gold prices surged on notion of the Trump Administration levying import duty on gold.

 

Gold CFTC: The long-only positions fell 26,079 lots to 178,435 lots as the net -long positions fell 28,022 lots to 142,846 -- the least bullish in three weeks. Short-only positions rose 1,943 lots to 35,589 lots -- the highest in five weeks.

 

Upcoming data: The current week is light on data; the next batch of major data that includes weekly job report, nonfarm productivity, and unit labour costs (2Q prelimary) will be released on August 7.

 

Outlook: Overall, gold is still stuck in its nearly three-month range of $3250-$3450.

  Gold prospects have changed drastically as the US nonfarm payroll data proved to be disastrous. Spot gold is seen trading with a slight bullish bias as trade developments unfold. While weakness seen in the key US data is positive for the metal as September Fed rate cut probability has risen sharply, investors are closely monitoring trade developments, especially US-China trade truce extension, which is keeping the metal capped for now.

  Mounting risks to Fed’s independence as President Trump fired BLS Chief in the wake of the US nonfarm payroll data revision is also positive for the metal. US President Donald Trump will have a chance to choose a replacement for Federal Reserve Governor Adriana Kugler following her resignation Friday, so he can go for a lower rate favouring Governor.

Gold is less than 4 per cent down from its all-time high of $3500 made in April. The Indian Rupee will be vulnerable in case Trump substantially increases tariff rate for India.

  Buying the dips is favoured in the current scenario unless a positive breakthrough happens on the US-China trade truce front. Support is at $3350 (₹100,300) $3320 (₹99.400)/$3292 (₹98,600). Resistance is at $3400 (₹101,900)/$3450 (₹103,400).  

MCX prices are INR/USD rate of ₹87.75.  (Disclaimer: Praveen Singh Associate is vice president of fundamental currencies and commodities at Mirae Asset Share khan. Views expressed are his own.)