Gold outlook: Track key support, resistance amid mixed market signals

Gold trading strategy: In the near-term, safe haven demand is somewhat subdued due to US-China trade truce extension and hopes from the upcoming US-Russia meeting in Alaska.

Gold: Slightly up as the US Dollar Index falls

 

Performance  

On August 12, spot gold prices traded between $3,331 and $3,360. The metal fell to $3331 on subdued safe haven demand as US-China extended their trade truce. Investors’ hoping for a breakthrough in the US-Russia talks over Ukraine on Friday also pressurized the metal. However, gold recovered as the US Dollar, already weak on rate cut hopes and healthy risk appetite, weakened further on the US President Trump floating a possibility of a lawsuit against the Fed Chair Powell over the Fed’s headquarters’ renovation. In addition, the BLS nominee EJ Antoni suggesting suspension of the monthly jobs data in an interview conducted before his nomination further weighed on the Greenback.

 

  At the time of writing this article, spot gold was changing hands at $3,349, up nearly 0.20 per cent for the day. The MCX October gold contract at Rs 100,186 was down by 0.15 per cent. 

Data roundup 

Much-awaited US CPI report (July) released on August 12 was not much comforting per se. Headline CPI rose 0.2 per cent m-o-m (forecast 0.2 per cent) and 2.7 per cent (forecast 2.8 per cent). However, core CPI, fuelled by services prices, climbed 3.1 per cent y-o-y (forecast 3 per cent y-o-y), fastest pace since February and the most in the last three years. Goods prices, excluding food and energy commodities, were contained. Core CPI accelerated to 0.3 per cent on m-o-m basis, faster than the estimated pace of 0.2 per cent increase. Shelter prices rose 0.2 per cent for a second month. Supercore services climbed 0.5 per cent--fastest pace since January.

  Despite elevated inflation readings, odds of a 25-bps cut in the September FOMC meeting stand above 90 per cent, though rate cuts beyond that look less certain.

 

Trade and tariffs 

On August 12, the US President Trump defended his tariff strategy as he said that trillions of Dollars are being taken in tariffs, which has been incredible for stocks and economy. He further said that consumers are not even paying tariffs.

Stephen Miran, the head of the Council of National Economic Advisors, said that tariffs will be borne by foreign companies and there is no evidence of tariffs in inflation.

 

US Dollar Index and yields 

At the time of writing this article, the US Dollar Index was hovering around 98, down nearly 0.5 per cent for the day. Ten-year US yields recovered on Trump threatening Powell with lawsuit and were steady at 4.29 per cent, while 30-year yields at 4.88 per cent were up by 0.60 per cent. 

 

Upcoming data

  PPI (July) will be released on August 14, while August 15, a national holiday in India, is packed with crucial data like retail sales (July), industrial production (July), University of Michigan sentiment and inflation expectations (August prel.) along with import and export price indices (July). 

Apart from data, as rate cut expectations grow despite high inflation, focus will be on Fed speakers, too.

 

Gold ETF and COMEX inventory

  Total known gold ETF holdings surged to 92.513 MOz, a fresh-cycle and 2-year high. ETF holdings have risen 11.63 per cent YTD. As of August 11, COMEX gold inventory stood at 38.617MO. Inventory has risen 5 per cent since mid-July.

 

CFTC

As per the weekly CFTC data, money managers increased their bullish gold bets by 18,965 to 161,811 as short-only positions fell 4,427 lots to 31,612 lots, lowest in more than five months.

 

Fed watch 

Richmond Fed President Barkin said that although uncertainty over the direction of the US economy is decreasing, balance between jobs and economy is unclear.

  Trump said that he may allow lawsuit against Fed Chair over renovation of Fed headquarters.

  Kansas City Fed President Jeffrey Schmid said on Tuesday that the policy rate is not far from neutral, but inflation remains too high. He cited limited impact of tariff on inflation as a reason to keep rates steady.

 

Gold Outlook

  Fundamentals of the shiny metal remain quite constructive on tariff tensions, growing global fragmentation, rising risks to the US Dollar, elevated institutional risk, heightened fiscal concerns in key economies and rate cut possibilities despite high inflation. However, in the near-term, safe haven demand is somewhat subdued due to US-China trade truce extension and hopes from the upcoming US-Russia meeting in Alaska. In such a scenario, gold is likely to be somewhat rangebound, albeit in a wide range of $3,290 (Rs 98,400)- $3,375 (Rs 101,000) unless more clarity emerges in the US-Russia talks. Next major resistance is at $3,420 (Rs 102,300).

  Possibility of a realistic and agreeable outcome in the Alaska talks is slim; thus, buying the dips is advisable. It is to be noted that the outcome will affect the domestic currency also.

Below $3,290,the next major support is at $3,250 (Rs 97,200).

 

(Disclaimer: Praveen Singh is the head of currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)