Here's how to trade Gold on February 14; Check support, target and more

Gold: Up as the US Dollar Index and yields slump on comforting US PPI data and reduced concerns over tariffs

 

Performance  On February 13, spot gold traded between $2900 and $2930 and closed with a gain of nearly 0.78 per cent at $2928 – its highest close ever-- as the Dollar Index and US bond yields fell on tame US PPI data and Trump’s reciprocal tariff plans did not turn out to be as severe as anticipated.

 

Data roundup

 

US PPI data (January) came in hotter than expected as PPI final demand m-o-m came in 0.4 per cent (forecast 0.3 per cent, prior revised higher from 0.2 per cent to 0.5 per cent), while PPI y-o-y at 3.6 per cent beat the estimate of 3.3 per cent (prior revised higher from 3.5 per cent to 3.7 per cent), too. Core PPI m-o-m and y-o-y at 0.3 per cent and 3.6 per cent were hotter than their respective forecasts of 0.2 per cent and 3.1 per cent. Initial jobless claims fell from 220K to 213K (forecast 216K), whereas continuing claims at 1850K were way lower than the forecast of 1882K.

 

 

US bonds rallied on PPI data as some of the components of the PPI data that go into PCE inflation data softened.

 

Trump announces reciprocal tariffs

 

President Trump announced reciprocal tariffs on concerned nations including those nations even use VAT as a barrier to US imports. However, he qualified these tariff measures as non-monetary tariffs. The US Commerce Secretary Howard Lutnick will finalise the details and final studies are to be done by April 1.

 

The Fed Chair Powell's testimony

 

In his two-day testimony to Senate Banking and House Financial Services, the Fed chair reiterated his FOMC stance that the US economy is doing well, downside risks to the labour market have diminished, and the Central Bank gas made substantial progress toward inflation but there is still more work to do. He added that there is no rush to cut rates. Although he sidestepped the US President's tariff policy, he said that he believes that economies function best without trade barriers on their trading partners.

 

The US President calls for lowering rates

 

The US President, on Wednesday, once again called for cutting rates to support the US economy.

 

Upcoming data

 

Today's major US data on the card include retail sales advance (January) and import and export price indices (January) along with industrial production (January).

 

US Dollar and yields

 

As tariffs will not be implemented soon and plans do not sound as severe as feared, the US Dollar Index slumped, and bonds remained bid.

 

The ten-year yields swung between 4.51 per cent and 4.62 per cent and closed with a loss of over 2 per cent at 4.52 per cent. The 2-year yields at 4.31 per cent settled nearly 1 per cent lower. The US Dollar Index has not been able to gain upward traction despite uncomfortably hot US CPI data as traders, following the announcement of the US President Trump seeking an end to the ongoing Russia-Ukraine war, are piling into the Euro. In addition, tame PPI data and alleviated concerns about tariffs also weighed on the US Dollar Index that closed with a loss of nearly 0.90 per cent at 107.06—the lowest since January 26.

 

Gold lease rate and COMEX inventory 

Gold lease rate have exploded higher on rising demand for the metal. Similarly, the COMEX gold inventory is bulging as longs intend to take delivery. The metal is being shifted from Europe to the US on arbitrage trade as US gold prices are rising at a faster rate than London prices. Adding to the mix is speculative buying pushing futures further higher. US Sovereign wealth fund: There is a possibility of the US revaluing its gold reserves in Fort Knox and other US depositories at market price. The gold reserves are currently valued at 1974 price of $42/Ounce. Revaluation of reserves may facilitate establishment of a sovereign wealth fund. This is yet another notion pushing up gold prices.

 

The COMEX gold stock stood at 36.454MOz as on February 12. The gold inventory at COMEX has more than doubled since the US Presidential election results in November as investors are opting for taking delivery rather than going for cash settlement. This squeeze is also helping the metal in its ongoing rally.

 

ETF

 

Total known global gold ETF holdings rose to 93.932MOz on February 12, highest since November 1.

 

Shanghai gold premium

 

Shanghai gold premium stood at -$0.57 as on February 13. Reciprocal tariffs:

 

Outlook

 

Soft PPI and subsiding concerns over tariffs have once again rekindled the hope for early rate cuts as traders are now looking for a possibility of a rate cut in September rather than in December as rate cut probability had dwindled in the wake of hot CPI data. Dollar weakness and steadying US bonds are likely to support the metal. Apart from these traditional drivers, rush for physical holding is the key driving factor.

 

Gold is expected to trade with a positive bias as buyers have $3000 (MCX April gold Rs 88,000) level in focus. Support is at $2900 (Rs 85,000)/$2850 (Rs 83,500). Resistance is at $2945 (Rs 86,500).  

 

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