Gold outlook: Yellow metal to remain range-bound on tariff uncertainty

Gold outlook: The yellow metal is likely to range-trade unless and until major breakthroughs in trade deals happen, or tariff tensions are ratcheted up further

Gold: Seen range trading

Gold Performance:

On July 10, spot gold traded between $3,310 and $3,331.  US President threatening Brazil with a 50 per cent tariff and the trend line support around $3275 holding fast gave the metal impetus to extend its rally to the second day.  At the time of writing this article, the metal was changing hands at $3,319, up around 0.2 per cent for the day. MCX August gold contract at ₹96,750 was up 0.29 per cent.

Tariff developments:

On Wednesday, US President Trump threatened Brazil as the latest addition to his list of countries to be subjected to reciprocal tariffs. Brazil has been slapped with an outsized tariff of 50 per cent that will come into effect from August 1. Bloomberg estimates the damage due to the proposed tariff to be around 1 per cent of GDP, with a possible recession in the second half.  Brazil's President Lula said that proposed 50 per cent tariffs will trigger the country's economic reciprocity law that allows trade, investment, and intellectual property agreements to be suspended against countries that harm Brazil's competitiveness.  The European Union is striving to seal a preliminary deal with the US to lock in a 10 per cent tariff rate before the August 1 deadline.

 

  So far this week, the US President has warned 22 countries with tariffs ranging from 20 per cent to 50 per cent, as key economies like Japan, South Korea, and Brazil have also been targeted.   ALSO READ | Silver trading: White metal well-placed to rally further, says analyst

US Dollar and yields:

During the day, the US Dollar Index swung between 97.27 and 97.92, and extended its winning streak to the fourth straight day, up around 0.2 per cent as it hovered around 97.74.

  US ten-year yields rose by 2 bps to 4.36 per cent.

Data roundup:

The US weekly job report was encouraging as weekly jobless claims (July 5) fell from 235K to 227K vs the estimate of 235K, while continuing claims (June 28) at 1,965K matched the forecast of 1,965k.

  China's PPI (June), released on July 9, came in at -3.6 per cent -- worst since August 2023-- Vs the forecast of -3.3 per cent (prior -3.3 per cent), as factory deflation continued for the thirty-third month in a row. The CPI at 0.1 per cent topped the estimate of -0.1 per cent (prior 0.1%), though the outlook remains uninspiring.

ETF and COMEX gold inventory:

As of July 9, total known global gold ETF holdings stood at 90.465MOz, highest since August 2023.

  COMEX gold inventory was noted at 36.87MOz, down 18.17 per cent from the record high level of 45.07 Moz recorded on April 4. Decline in inventory shows investors' preference to own physical gold.

FOMC minutes:

FOMC minutes of the June 18 meeting, released on July 9, showed that the Fed policymakers remain split on the future course of monetary policy as 10 of the 19 members expected at least 2 rate cuts by the year-end, while seven see no rate cut at all. Two of them see one rate cut.

Upcoming data:

The next major US data on the card includes June CPI to be released on July 15. 

Gold Outlook:

Spot gold is drawing support from tariff concerns as some of the key economies like Japan, South Korea, and Brazil have also been subjected to elevated tariff rates.

  Upside is expected to be limited unless we see a major retaliation from the leaders of the key economies.

  Downside is also expected to be limited due to uncertainty and the very fact that merely three weeks are remaining before the August 1 tariffs come into effect.

  Overall, gold is likely to range-trade unless and until major breakthroughs in trade deals happen, or tariff tensions are ratcheted up further.

  Support is at $3290, while resistance is at $3350/$3370. The next major support kicks in at $3247.  A convincing deal with the EU will weigh on the metal.  (This article is by Praveen Singh, senior fundamental research analyst- currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)