Mirae Asset sees gold testing $4,535 as yields and oil prices ease

Disclaimer: This article is written by Praveen Singh, head of commodities at Mirae Asset ShareKhan. Views expressed are his own. Readers' discretion is advised.

 Gold could extend its recovery toward $4,535 as falling US Treasury yields and oil prices ease pressure on the precious metal. Gold rebounded 2.2 per cent on September 17 after a sharp fall following the Fed’s hawkish rate hike.

Performance

• On September 16, the yellow metal plunged 3 per cent from its intra-day high of $4367 as the Federal Reserve delivered a hawkish rate hike. However, the metal staged a strong rally on Thursday as sentiment improved with decline in yields and oil prices.
• At the time of writing this article on the night of September 17, the shiny metal was trading with a gain of 2.2 per cent at $4360.

Geopolitics and oil

 

The US House of Representatives has passed legislation that could impose tariffs of up to 100 per cent on countries that buy Russian oil and gas, posing a risk to India. India is among the countries most exposed to this threat. Russia supplied 30.3 per cent of India's crude imports in fiscal 2026, and Indian refineries have turned Russian crude into fuels that can be exported.

Oil slumped on Thursday on multiple reasons. Saudi's East-West pipeline has been partially restored. Saudi Arabia has restored some supplies via ship-to-ship transfer in the Gulf of Oman. The spot cargoes sold by Aramco are for loading from the Gulf of Oman on a ship-to-ship basis over September to October. It still involves crude volumes to traverse Hormuz; however, buyers will not be responsible for that portion of the voyage given the pick-up location. Reuters reported that China has urged Iran to restrain Houthis who have been responsible for numerous attacks in the region.

ETF flows

Total known global gold ETF holdings stand at 100.34 MOz, up 1.49MOz YTD, as ETFs recorded net inflows for seven consecutive days. Holdings have recovered sharply after falling to the cycle low of 96.16 MOz on July 20, though they are still down 18.03 tons from the cycle peak of 100.92 Moz seen just before the start of the Iran war.

Dollar Index and yields

The US Dollar Index surged 0.6 per cent to 100.35-- highest since July 31-- on hawkish Fed hike, though it eased slightly on Thursday. At the time of writing this article, the Index was hovering around 100.13, down 0.1 per cent for the day. Foreign currencies were mostly up on lower Us yields and lower oil prices.

Two-year US yields swung wildly on the FOMC day with day's low and high noted as 4.59 per cent and 4.74 per cent, respectively. The yields closed with a gain of 1.5 per cent at 4.73 per cent -- highest since July 2024-- on Wednesday but eased 1 per cent to 4.68 per cent on Thursday.

In the wake of the FOMC decision, ten-year US yields closed 2 bps up at 5.02 per cent, a fresh high since 2007, but eased nearly 1.5 per cent on September 17 as oil prices fell.

Data roundup

US data - Total net TIC inflows fell from $133.5 billion in June to $83.70 billion in July, while net long-term TIC flows turned negative (-$27.90 billion from $174.40 billion). Initial jobless claims fell from 1769K to 1730K. Housing starts fell from upwardly revised 1309K in July to 1275K in August, while pending home sales (August) were mixed. Earlier, advance retail sales data released on September 16 topped the estimates on all the counts. Retail sales rose 1.2 per cent m-o-m in August, Vs the forecast of 0.8 per cent, while prior data was revised higher from -0.6 per cent to -0.5 per cent. Even retail sales control Group, whose component go into GDP calculations, came in at 1.4 per cent Vs the estimate of 0.5 per cent. Core retail sales were also quite robust.

Central Bank Watch

As widely expected, the US Federal Reserve raised the federal funds target range by 25 basis points to 3.75 per cent–4.00 per cent at its September 16 FOMC meeting. The 12–0 vote was unanimous. The Committee identified inflation as the predominant concern as job concerns have eased following the robust August nonfarm payroll report. Policymakers projected another rate increase before the end of the year and removed an expected rate cut from next year’s projections. Fed Chair Warsh said the economy remained strong and described the increase as removing a “dose of accommodation” from policy. The FOMC’s monetary policy decision was hawkish and established the Fed’s credibility and independence as the hike came despite immense political pressure to cut rates. Consequently, Dollar Index and commodities fell.

As anticipated, the Bank of England, kept the benchmark rate unchanged at 3.75 per cent in its monetary policy decision delivered on September 16, though three of the nine members of the MPC voted for a hike. The Bank has not followed the Fed and the ECB in hiking rates as it finds little evidence that high energy prices are spilling over to everyday prices. Nonetheless, the Bank warned that a prolonged Iran war will force it to raise rates. In a much-needed relief for the sharply falling gilts, the Bank of England has done a significant overhaul of its plan for selling off excess gilts geared towards quantitative tightening program. Under the new schedule, the BOE will pause all bond sales from its £488 billion ($650 billion) portfolio until April and stop selling long-dated bonds altogether. Under the new plan, the Quantitative Tightening portfolio would now be unwound by September 2034. The central bank also intends to unload gilts maturing between 2035 and 2049 to the Debt Management Office rather than directly to the market. It will pause all QT sales until April 2027. UK gilts edged higher as supply will be reduced.

The Bank of Japan is expected to hike the benchmark rate by 25 bps at its policy meeting on September 18. Chicago Fed President Austan Goolsbee will speak on monetary policy at the official Monetary and Financial Institutions Forum in London on September 21.

China's PBoC is expected to keep one-year and five-year Loan Prime Rate unchanged at its monetary policy scheduled on September 21.

Upcoming data

• Major US data on tap in near term include August industrial production (August), September pre S&P PMIs (September 23) and new home sales (September 24).
• European PMIs will be released on September 24.

Outlook

Gold rallying despite the Fed doing a hawkish rate hike is somewhat counter intuitive. The recovery in gold prices is driven primarily by drop in the US yields and oil prices.

The Federal Reserve is not expected to hike in October as it is likely to adapt a ‘wait and watch’ approach to assess incoming data and impacts of its September rate hike. This gives a rise to the notion if oil prices fall sharply by December FOMC meeting (due on December 9), the probability of December rate hike will fall, so the September hike could be one-off hike event like the Fed hiking rate in March 1997 only to cut in 1998.

Going by this like and looking at the yields, gold may extend its recovery. Ten-year US yields can correct further. In that scenario, gold may rise to test the resistance zone of $4520-$4535. However, oil prices rising further will pose a downside risk to this possibility. Support is at $4200-$4220, which is likely to be tested in the coming weeks/months unless oil prices drop significantly/there is market intervention by the US as one-off rate hike events are rare.