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Gold: Vulnerable as China’s stimulus plans lack specific details
Gold Performance:
On December 12, spot Gold extended its four-day winning streak in the European session as the Swiss National Bank unexpectedly slashed the key rate by 50 bps, more than the 25-bps cut expected by the markets. At the same time, the news of the South Korean President Yoon to face second impeachment broke out, helped the metal take out the resistance at $2,722.
However, it was unable to sustain its gains as China's Central Economic Work Conference's stimulus plans disappointed. The plans, which sketched out the fiscal spending, rate cut, and further supports to the struggling economy, were short on specific details.
US November PPI data coming in hotter than expected and the European Central Bank delivering a dovish 25 bps rate cut added to the downside pressure.
The yellow metal tumbled to test the key support around $2670. At the time of writing this report, it is trading at $2682, down 1.31 per cent on the day.
The MCX February contract at Rs 77,900, is down 1.39 per cent.
Data roundup:
The US PPI data (November) turned out to be hotter-than-expected: the PPI final demand M-o-M at 0.4 per cent (the fastest rise in the last five months) and PPI final demand Y-o-Y at 3 per cent topped their respective forecasts of 0.2 per cent and 2.6 per cent.
Similarly, core PPI M-o-M and Y-o-Y came in at 0.2 per cent (forecast 0.2 per cent) and 3.4 per cent (forecast 3.2 per cent), respectively. PPI final demand M-o-M/Y-o-Y and core PPI final demand Y-o-Y of October were revised higher. Weekly US jobless claims surged to two-month high reading of 242K (forecast 220K) from 225K as even continuing claims were higher-than-expected to remain at a 3-year high level.
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Data released on Wednesday showed that the US CPI data were in line with the forecast but were higher than the October figures as CPI M-o-M and Y-o-Y were noted at 0.30 per cent (prior 0.20 per cent) and 2.7 per cent (2.60 per cent). Core CPI data at 0.3 per cent M-o-M and 3.3 per cent Y-o-Y matched their respective forecasts but still show high inflation.
Central bank watch:
As expected, the European Central Bank (ECB) slashed the key rates by 25 bps. The Bank removed references to “restrictive policy” in its policy guidance as it remains open to further cuts due to struggling economy and subdued inflation. In fact, some of the policymakers discussed a 50-bps rate cut, too.
The Swiss National Bank (SNB) cut the benchmark rate by 50 bps which was larger than a 25-bps cut expected by the most. Larger-than-expected rate cut was delivered to check the strength of the Franc against the US Dollar. The Bank removed the allusion to “further rate cuts” in its guidance.
Upcoming data:
Today's US data include import price indices (November).
World Gold Council on gold:
The World Gold Council, in a report released on December 12, stated that after a record-breaking year of 2024 in which gold prices jumped over 30 per cent, the metal is expected to rise at a slower pace in 2025 due to factors like growth and inflation.
ETF:
Total known global gold ETF holdings rose for the fourth straight day to 82.998MOz on December 11, slightly higher on the week.
Gold Outlook:
Lack of China's stimulus details is the key bearish factor which is weighing on commodities now. Huge expectations from China’s CEWC regarding stimulus details played a key role in the recent rally of commodities including gold. Now, the focus will be on the FOMC monetary policy decision, due next week. However, given the sticky US inflation, the Fed is expected to take a temporary pause after the December rate cut, which will make future rate cuts data dependent.
If the geopolitical situation does not worsen further in the near term, gold will be vulnerable. It may test the support around $2630 (Rs 76,400) in the coming days. Interim support is at $2670 (Rs 77,500). Resistance is at $2700 (Rs 78,400)/$2730 (Rs 79,300). Traders are likely to sell into rally with tight stop-losses. The downside may be limited on inflation hedging and safe haven buying on geopolitical factors.
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Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.