Gold to stay volatile amid Yen unwinding; Sharekhan shares trading strategy

Gold price today, August 7, 2024: Barring any major developments on the geopolitical front, gold may slide further

Gold: Down as the US yields and the US Dollar recover

Performance:

Spot gold has swung quite wildly in the last few sessions following the release of the recent US nonfarm payroll report, which was weak enough to stoke concerns about the US job market, and the US economy. 

The Japanese yen, which was already on a tear as the Bank of Japan hiked rates on July 31, surged further as the US yields nose-dived; thus, extending its July rally of 7 per cent to nearly 12 per cent from its cycle low. Surging yen led to aggressive unwinding of carry trades, which resulted in massive deleveraging by traders forcing them to liquidate their positions across the board. 

Gold also got caught in the downdraft as traders sold their gold to cover their losses elsewhere.

The metal was trading at $2,392, down nearly 0.60 per cent on the day, at the time of the MCX closing. It is down roughly 2.15 per cent this week, and roughly 3.75 per cent from the cycle peak of $2,483. MCX October gold futures were trading at Rs 68,965, down 0.38 per cent.  

Data roundup:

The US employers added 114K jobs in July (forecast 175K) as the unemployment rate surged to 4.30 per cent (forecast), highest since October 2021, from 4.10 per cent in July. The two-month payroll net revision stood at -29K. Average hourly earnings M-o-M rose 0.20 per cent (forecast 0.30 per cent), while Y-o-Y earnings growth also slowed to 3.60 per cent (forecast 3.70 per cent) from 3.90 per cent in June.

US ISM services data (July), released on August 5, came in at 51.40 (forecast 51), which halted the bond rally.

Euro-zone retail sales data, released Tuesday, fell 0.30 per cent Y-o-Y in June (forecast +0.10 per cent) and 0.30 per cent M-o-M (forecast -0.10 per cent)

Upcoming data:

A major focus this week will be on the US weekly jobless claims, which have surged to a one-year high. China will release its trade balance and inflation data on Wednesday and Friday respectively.

US Dollar and the yields:

The US Dollar Index, which suffered a heavy blow post-nonfarm payroll report, was hovering around 103, up around 0.30 per cent. It is still down nearly 1.40 per cent from the pre-nonfarm payroll report peak. The ten-year US yields fell nearly 37 bps this month and were recovering as the US ISM services data was somewhat encouraging. The ten-year yields were at 3.87 per cent, up around 20 bps from the cycle low. The two-year yields were at 4 per cent, up around 2.51 per cent on the day as the yields recovered from the cycle low of 3.65 per cent.

Fedspeak:

Federal Reserve Bank of Chicago President Austan Goolsbee said that the central bank’s job is not to react to one month of weaker labor data. He added that markets are much more volatile than Fed actions.

Federal Reserve Bank of San Francisco President Mary Daly said that July jobs report reflected a lot of temporary layoffs and hurricane effect. In addition, she said that none of the job market indicators she looks at are flashing red presently, but they are monitoring carefully.

ETFs:

Total known gold EYF holdings stood at 82.583 MOz as of August 5, the highest level since February 23.

Outlook:

Gold is likely to be volatile on uncertainty in the financial markets as the Yen carry trade unwinding is yet to be completed. The Fedspeak does not reflect heightened concerns about the state of the US job market, which means that the US Dollar Index and the yields may recover further in the near future. Barring any major developments on the geopolitical front, gold may slide further. Support is seen at $23,65 (Rs 68,200) /$2342 (Rs 67,500). Resistance is at $2415 (Rs 69,600)/$2438 (Rs 70,200)/$2450 (Rs 70,600).

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Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, Views expressed are personal.