Gold to range trade in near-term; Sharekhan suggests 'Buying on dips'

Gold: Consolidating its losses after a precipitous decline

 

Performance:

Spot gold, after undergoing the biggest sell-off in four years on Monday that saw gold falling over 3 per cent ($105) in the intra-day move, was trying to steady itself on Tuesday.

 

The metal, closing 3.22 per cent lower at $2625 on November 25, traded between $2,605 and $2,642 on Tuesday and was down by nearly 0.20 per cent to trade at $2,620 at the time of writing this report. The MCX February contract was trading at Rs 75,973.

 

Data and event roundup:

In a major development, that is likely to hurt the global economy, President-elect Donald Trump said on November 26 that he would impose 25 per cent tariffs on goods imported from Canada and Mexico and additional 10 per cent tariffs on Chinese goods.

 

 

The US data released on Tuesday were largely disappointing as Philadelphia Fed non-manufacturing activity (November) slid to -5.90 from 6 in October, new home sales (October) came in at 610K (forecast 7,25,000, prior 7,38,000) and Conference Board Consumer Confidence (November) was registered at 111.70 (forecast 111.80). S&P CoreLogic CS 20-City (September) was noted at 0.18 per cent (forecast 0.30 per cent).

 

The US dollar index and the yields:

The US dollar index, which slid on Monday following the incoming Trump administration appointing Scott Bessent, a deficit hawk, regained some of the lost ground Tuesday on tariff threats.

 

The US dollar index was up nearly 0.25 per cent at 107.08 at the time of writing this report. The ten-year yields rose 1.08 per cent to 4.308 per cent-- still in the low-end of the recent range though, whereas the two-year yields at 4.289 per cent were up by 0.87 per cent.

 

Upcoming data:

As the US markets will have a shortened trading week, we have a data deluge scheduled for November 27.

 

Traders will closely watch secondary 3Q US gross domestic product (GDP), durable gold orders (October Preliminary), initial jobless claims, personal income and spending (October), and Personal Consumption Expenditure (PCE) price Index, the Fed's preferred gauge on inflation.

 

ETF:

Total known global ETF holdings reached 83.194Moz as of November 25, the highest level since November 15, as holdings rose for the fifth straight day.

 

Geopolitics:

Geopolitical tensions have heightened as the Russia-Ukraine war takes an ominous turn with the possibility of leading to a nuclear war.

 

Russia's defence ministry said on November 26 that Ukraine had targeted Russian S-400 air defence systems and airfield in Kursk with ATACMS missiles in response to Russia's hypersonic missile attack on the city of Dnipro recently. Moscow has vowed to retaliate.

 

Outlook:

Spot gold is getting some support from the geopolitical situation and subdued yields as safe haven demand is still there. However, rallying risk assets, surging US dollar, and occasional bounce in the US yields due to inflation and deficit concerns will continue to act as headwinds. High volatility and choppy trading conditions are expected to continue.

 

The metal is expected to range trade in the near term; however, the flaring of geopolitical risks will lead to a sharp rally. Buying on dip is advisable.

 

Near term trading range is likely to be $2,565(Rs 74,400)-$2,665 (Rs 77,300). Interim support is at $2,600 Rs 75,400).  (This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are this own.)