Gold strategy on Sept 3: Support at ₹103,500; Resistance at ₹109,500

Gold outlook: Spot gold continues to find robust support from a confluence of macroeconomic factors, chief among them being the rapidly deteriorating fiscal landscape in major economies.

Gold - Up on safe haven demand and rate cut expectations

Performance

  Spot gold rose for the sixth straight day on September 2. At the time of writing this article, the yellow metal was changing hands at $3,527, up 1.46 per cent for the day as it hit a fresh record high of $3530. The MCX October gold contract at Rs 105,850, was up 1 per cent.

  Gold surged on rate cut expectations and safe haven demand as global bonds slumped on mounting fiscal worries.

  Global bonds slumped as 30-year UK yields surged to 5.718 per cent, highest since 1998, on fiscal concerns. Bloomberg Economics estimates that Chancellor of the Exchequer Rachel Reeves must find savings or raise taxes to plug a £35 billion ($46.9 billion) budget hole ahead of her autumn budget. The pound plunged 1.50 per cent to 1.3340 before cutting some of its losses. 

 

Long-term yields of German and Dutch bonds are at a 14-year high. 

  The Japanese Yen tumbled over 1 per cent as it was reported that Hiroshi Moriyama, Secretary General of Japan’s Liberal Democratic Party, and a key ally of the PM Ishiba intends to resign. Investors have become concerned that the resignation of Hiroshi, a fiscal hawk, may lead Japan to follow an expansionary fiscal policy at a time when the Bank of Japan needs to hike rates to address the issue of stubbornly high inflation.

 

Data roundup 

US data released on Tuesday showed that S&P Global US manufacturing PMI (August) was revised lower from 53.30 to 53 in its final reading. ISM manufacturing (August) improved from 48 in July to 48.70 in August but trailed the median estimate of 49 as manufacturing contracted for the sixth consecutive month. ISM Prices paid cooled down from 64.80 to 63.70 (forecast 65) as new orders expanded unexpectedly. ISM Employment came in at 43.80 Vs the forecast of 45; thus, contracted at a rate faster than expected.  Construction spending was down 0.1 per cent in July as it contracted for the third straight month.

  Eurozone's core CPI, matching the forecast, rose 2.3 per cent Y-o-Y, while headline CPI accelerated 2.1 per cent Y-o-Y, faster than the July reading of 2 per cent.

 

Dollar Index and yields 

At the time of writing this article, the US Dollar Index was at 98.30, up nearly 0.55 per cent for the day. The Index rose after three straight days of losses. 

  Ten-year US yields rose by 1.15 per cent to 4.277 per cent as 30-year yields at 4.975 per cent were up by 0.96 per cent. US yields are being driven higher as bonds slump globally. 

 

Fed rate cut bets 

Odds of a 25 bps Fed rate cut stand at 92 per cent currently as traders price in a little over 50-bps cut in total by the end of the year.

 

Gold ETF and COMEX inventory 

Total known global ETF holdings surged to 93.38 MOz on September 1, the highest level since June 23, 2023. Gold ETFs recorded inflow for the seventh consecutive day; holdings are up 12.71 per cent YTD.

  As of August 29, Registered COMEX gold inventory stood at 38.92 MOz, down 13.64 per cent from the record level of 45.07 MOz noted on April 4.

 

Upcoming data 

Major US data on tap today include JOLTs job openings (July) and factory orders (July). In addition, the Eurozone and the UK will release their final reading of August services and composite PMIs.

 

Outlook 

Spot gold continues to find robust support from a confluence of macroeconomic factors, chief among them being the rapidly deteriorating fiscal landscape in major economies. Remarkably, the metal has shown resilience by advancing even as the U.S. dollar strengthens, and Treasury yields climb—a bullish divergence that underscores gold’s safe-haven appeal amid growing uncertainty in risk assets.

  Investor sentiment has turned increasingly favourable following Fed Chair Jerome Powell’s speech at the Jackson Hole symposium on August 22. His cautious tone has fuelled expectations of a rate cut at the upcoming September FOMC meeting, prompting a notable uptick in ETF inflows.

  This combination of fiscal fragility, monetary easing prospects, and renewed investor interest paints a constructive backdrop for gold, reinforcing its role as a strategic hedge in portfolios navigating turbulent waters.

  US ISM services will be the key data to watch out for before the crucial nonfarm payroll report which will be released on September 5.

  Gold is expected to trade with a positive bias on threats to the Fed’s independence, rising fiscal worries and Fed rate cut hopes.

  Barring a strong US monthly job report, gold may rise further to test the resistance around $3,650 (₹109,500) in the coming weeks/months. Support is at $3,450 (₹103,500)/ $3,400 (₹102,000).  

  MCX rates at USDINR level of 88 

 

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