Gold Strategy for July 3: Support at Rs 71,300; Resistance at Rs 72,000
Gold: Slightly lower as Powell remains cautious about potential rate cuts
Performance
Spot gold rose slightly ahead of US Fed Chairman Powell’s speech at the European Central Bank’s forum on central banking in Sintra, Portugal. However, the attempt to rise was again thwarted by the stiff resistance of the $2340-$2350 zone as the US Fed Chairman continued to maintain a cautious stance on the possibility of rate cuts by the Fed.
The yellow metal was trading at $2,324 at close of MCX, down nearly 0.30 percent on the day, while the MCX gold contract for August was trading at Rs 71,570 (LTP), down 0.12 percent.
The US Dollar Index and US Yields
Ten-year yields reversed some of the sharp gains of the past two days, recovering somewhat on the back of Powell’s view on interest rates and US JOLTs job vacancies data that came in slightly better than expected. US 10-year yields were trading at 4.44 percent, down 0.78 percent on the day, at the close of the MCX. The US Dollar Index was marginally lower on the day at 105.77.
Central bankers at the European Central Banking Forum
US Federal Reserve Chairman Powell told the ECB forum in Sintra, Portugal, that the latest US economic data showed inflation was back on a downward path, but the Fed needed more evidence on inflation data before it could cut interest rates. He acknowledged that both the US economy and the labour market were strong, although an unexpected loosening of the labour market would warrant a U-turn in the Fed’s monetary policy. He warned that the US budget deficit had to be fixed, as it was on an unsustainable path.
ECB President Lagarde was dovish in her views on the ECB’s monetary policy as she said the ECB does not need to slow down services inflation to the 2 percent target to decide on cutting benchmark rates as industrial inflation is already below 2 percent. It should be noted that services inflation in the eurozone remained at 4.1 percent while headline inflation eased to 2.50 percent. The Brazilian central bank chief said the Brazilian central bank is not considering rate hikes yet. The central bank last week ended its year-long easing cycle.
Data overview
US ISM manufacturing and construction spending figures released on Monday fell short of respective forecasts as manufacturing activity shrank for the third straight month.
The JOLTs (May) job postings, released Tuesday, came in at 8,140,000, compared to a forecast of 7,946,000. However, the earlier data was revised down from 8,059,000 to 7,919,000.
Upcoming Dates: Data Flood Warns Warning
Key U.S. data available today include the ADP employment change (June), trade balance (May), weekly employment, S&P Global US Services and composite PMIs (June final), factory orders (May), durable goods orders (May final), and ISM Services Index (June). Minutes from the June 12 FOMC meeting will also be released tonight.
Gold ETF Investments
In a somewhat positive development for the yellow metal, total known global gold ETF holdings rose for the fifth day on July 1 to 81.052MOz, the highest level since June 11.
Perspective
This week is quite crucial for gold as we have important US data such as ISM services, ADP, factory orders and monthly nonfarm payrolls. Apart from these data, market participants are looking at the FOMC minutes (June 12 FOMC meeting) for indications on the rate cuts.
The French elections are also on investors’ radar, as the second round takes place on Sunday. For now, the euro has been able to avoid the downward pressure from the far-right National Rally party, which is performing slightly below expectations; nevertheless, political concerns remain, which could strengthen the US dollar. US yields are leaning higher on budget deficit concerns, as Trump held a lead over Biden in the first round of the presidential debate.
Based on the regional Fed surveys and CB confidence data, US nonfarm payrolls could surprise on the upside. S&P Global US services data points to healthy ISM services data. So overall, gold is expected to trade with a slight bearish bias ahead of the key US data release today.
The metal will fall further if key US figures prove robust.
Support for the metal lies at $2315 (Rs 71,300)/$2300 (Rs 70,830)/$2277 (Rs 70,100). Resistance lies at $2340-$2350 (Rs 72,000-Rs 72,400) zone, followed by $2370 (Rs 73,000).
(Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. The views expressed are his own)
First print: 03 Jul 2024 | 07:09 am IST