Gold rate outlook: Yellow metal slips as investors assess tariff scenario

Gold rate outlook: At the time of writing this report, both spot gold and the MCX August gold contract were down by 1 per cent on the day. The spot gold was hovering around $3,295

Performance:

• On July 8, spot gold traded between $3,287 and $3,346 per ounce. The yellow metal fell in the US session as Japan and the US will reportedly start tariff negotiations vigorously. 
• At the time of writing this report, both spot gold and the MCX August gold contract were down by 1 per cent on the day. The spot gold was hovering around $3,295, while the MCX August gold contract was at  ₹96,300.

Tariff developments:

• US President Donald Trump announced his much-awaited tariff plans to impose higher rates of 25 per cent-40 per cent on key trading partners. 
• As per the new proposition, tariffs on Japan, South Korea, Malaysia, Kazakhstan, and Tunisia, would be 25 per cent, while Laos and Myanmar would face a 40 per cent rate.
• South Africa and Bosnia to face 30 per cent, Indonesia 32 per cent, Bangladesh and Serbia 35 per cent, Thailand and Cambodia 36 per cent tariffs. 
• Tariff deadline has been extended from July 9 to August 1.
• Additional tariff letters will be sent shortly. 
• India and the US may reach a mini-trade deal shortly.
• US President Trump said on Tuesday that the August 1 tariff deadline will not be extended, though earlier he had said that the deadline may not be 100 per cent firm depending on the trade deal developments.
• Trump to announce semiconductor tariffs.
• European Commission President Ursula von der Leyen accused China of distorting trade and limiting access for European firms. She, addressing the EU Parliament stressed at the need of a genuine rebalancing.
• Trump plans 50 per cent tariff on copper imports:
• On Tuesday, President Trump announced that he will be implementing a new 50 per cent tariff on copper imports.
• Commerce Secretary Howard Lutnick said that copper tariffs could go into effect in July-end/August 1.

 

New York Fed Survey:

The New York Fed's Survey of Consumer Expectations shows that respondents in June saw inflation at 3 per cent 12 months from now, which is at the same level as it was in January. Inflation expectations eased 0.2 per cent from May. Tariff-induced Inflation is yet to show up in most of the inflation data. Expectations at the three- and five-year horizons were unchanged at 3 per cent and 2.6 per cent respectively.

 

Upcoming data:

• FOMC minutes of the Fed’s June 18 FOMC meeting will be released on July 9.
• China's PPI and CPI data (June) will be released on July 9. 

Fitch Ratings on trade war:

Fitch Ratings, in its latest ‘Fitch-20 Economic Monitor’, highlighted that the trade war has resulted in volatility in global trade flows and foreign-exchange rates in recent months.

Gold ETF and COMEX inventory:

• As of July 7, total known global gold ETF holdings stood at 90.491MOz, up around 9.22 per cent YTD.ETF holdings posted the first weekly decline after five straight weeks of build-up. Nonetheless, holdings continue to hover around two-year high.
• COMEX gold inventories continue to decline as investors take hold of physical metal. As of July 7, inventories stood at 36.71MOz, down over 18 per cent since they reached a record-high level of 45.07MOz on April 4.

Perth Mint Gold Sales:

Perth Mint gold coins and minted bars rose to 32,901 MOz in June from 28,244 Oz in May.

Outlook:

• Spot gold is well supported by strong ETF inflows, tariff tensions and investors scrambling to take possession of physical gold.
• A firmer Dollar is weighing on the metal though.
• In the very short-term, gold's direction is likely to depend on tariff news flow. As Trump has extended the tariff deadline to August 1, safe haven flows are somewhat subdued, which is why gold is under pressure. It won’t be surprising to see the deadline getting extended further.
• At the same time, markets may become concerned over trade wars as even the August 1 deadline is not far off.
• Weighing in all the positive and negative factors, gold is expected to range trade between $3,272 ( ₹95,600) and $3,350 ( ₹98,000).
• The next major support is at $3,247 (₹94,800). Interim resistance is at ₹97,100.
• Traders entertaining the possibility of Trump imposing tariffs on precious metals imports carries an upside risk.  
• In the very short-term, selling into rallies with a tight stop-loss is the preferred trade.

(This article is by Praveen Singh, senior fundamental research analyst- currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.)