Data-packed week to keep gold on edge, buy on dips opportunity beckons
Sun Aug 11 2024
Spot gold, after declining for five straight days through Wednesday, recovered most of its weekly losses as it surged in the last two days on improved risk sentiments in the wider markets. Gold continued to tumble in the initial days of the week as it was caught in a downdraft of a vicious sell-off in risk assets in the wake of extremely weak US nonfarm payroll report and unwinding of Yen carry trades, which forced traders to liquidate their gold positions to offset their losses in other assets. However, gold recovered with risk assets as traders now price in hefty Fed rate cuts this year.
Risk sentiments improved on an assurance by the Bank of Japan’s Deputy Governor Uchida saying that there won’t be any rate hikes amid weak markets in near term. At the same time, the US Federal Reserve officials downplaying weaker than expected US nonfarm payroll report (July) and encouraging US data also helped the risk assets recover. Spot gold closed with a gain of 0.18% at $2431 on Friday, though it was almost 0.50% down on a weekly closing basis.
US yields and Dollar Index
The ten-year US yields swung wildly in the week as the yields
slumped to 3.67% on August 5, the lowest level in more than a year, on
disappointing US nonfarm payroll report and market turmoil as the Japanese Yen
rallied to its highest level this year, triggering unwinding of Yen carry
trades, though the Japanese currency retreated nearly 4% from its cycle low
around 141 on positive US ISM services data and the Central banks’ officials’
stances.
The US 2-10 year yield curve almost uninverted this week for the first time
since July 2022, the longest period of inversion, as investors became concerned
about the possibility of a US recession.
The ten-year US yields closed nearly 4.50% higher on the week at 3.94% as the
yields fell around 1.25% on Friday.
The US Dollar Index closed with a loss of around 0.13% at 103.15 and was down roughly 0.05% on the week.
Data roundup
US ISM services PMI (July) rose to 51.40 (forecast 51) from a more than four-year low of 48.80 recorded in June. Prices, employment, and new orders improved as employment jumped back into the expansion zone, which dissipated some of the pessimism around the US nonfarm payroll report. It also questions the extremely weak US monthly report.
The weekly US jobless claims in the week ending August 3 fell to 233K from
250K, the fastest pace in a year, though continuing claims in the week ending
July 27 rose to 1875K from 1869K, a thirty-three-month high.
China’s July inflation data were released Friday. The CPI inflation index was
up 0.5% YoY (forecast 0.30%, prior 0.20%) on a rise in food prices and seasonal
factors. China's PPI YoY was noted at -0.80% (forecast -0.90%, prior -0.80%.).
The PPI inflation Index has remained negative since October 2022 though.
Central Bank action
China refrained from buying for the third consecutive month in July. The People's Bank of China had 72.80 million ounces of gold at the end of July, which is nearly 5% of its forex reserves. It is a negative development for the metal.
ETF/India demand
Total known global gold ETF holdings, after rising for three straight days, fell sharply from 82.736MOz on August 7 to 82.164MOz, which is lower than last week's level of 82.458 MOz.
As per the World Gold Council, India’s gold demand in 2024 is expected to be
around 750 tons, which is comparable to the 2023 demand of 761 tons.
Upcoming data
After a light week, the next week is a data-packed week as US CPI (July), retail sales advance (July), Philadelphia Fed business outlook (August) and industrial production (July) data are on tap. As the Chinese economy continues to be in focus, investors will also keenly monitor China's home prices, retail sales, industrial production and property investment (all July) data to be released next week.
Outlook
Gold strength is mainly lying in the US Fed rate cut expectations as concerns over a possible US recession in coming quarters due to the weakening US labour market are keeping yields lower. However, weak bond auctions of ten and twenty-year US bonds this week casts doubt on the high probability of a US recession in the near term. Nonetheless, traders are expected to buy the dips ahead of US CPI inflation and advance retail sales data next week. The upcoming Jackson Hole symposium on August 22-24 is also going to keep traders hopeful as they expect crucial hints regarding rate cuts from Fed Chair Powell. It is considering the fact that in hindsight it seems that the Fed missed a good opportunity of starting rate cuts at its FOMC meeting concluded on July 31. The metal is expected to find strong buying support into the dips though weak Chinese demand is a bearish factor.
Subdued US inflation and weak retail sales data will help the metal extend its
recovery.
Support is at $2413/$2400/$2379/$2370. Resistance is at $2450/$2458/$2478/2485.
Source: https://economictimes.indiatimes.com/