 "Gold price outlook: Retail sales, US CPI inflation holds key, says Sharekhan")
Hotter than expected US PPI data (April) reading initially weighed on gold; however, the counter recovered and was trading at $2356, a gain of nearly 0.90% on the COMEX, at the time of the MCX closing. The corresponding MCX LTP for June was 72,305, up 0.63%.
Geopolitical watch:
The situation remains tense as Israeli tanks have pushed deeper into Rafah. Qatar has warned that in the present scenario, ceasefire talks are going backwards.
President Joe Biden is going to hike tariffs on a wide range of Chinese imports including semiconductors, batteries, solar cells, critical minerals, port cranes and medical products to support domestic production in critical industries. The increasing friction is somewhat positive for the yellow metal.
ETF holdings:
Total known global gold ETF holdings fell for the fourth day and were noted at 80.521 Moz on May 13.
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Data and event round up:
US PPI Final demand (April) m-o-m was up 0.50% Vs the forecast of 0.30%, PPI ex food and energy m-o-m was also up 0.5% as against the expectation of 0.20%. PPI ex food and energy y-o-y stood at 2.40% Vs the forecast of 2.30%, whereas PPI final demand y-o-y at 2.20%, which was in line with the forecast. Bond markets and gold initially fell in immediate reaction to the US data; however, bonds recovered on the notion that some of the elements in the PPI report, which will go into the PCE deflator report, were not hot enough. Moreover, downward revisions to the prior data also mitigated the impact. Powell downplaying the data also supported the bonds; thus, in turn gold.
The UK's Office for National Statistics released the UK job report. The report was weaker than expected. As per the report, the ILO Unemployment Rate edged higher to 4.3% in the three months to March from 4.2%. The Claimant Count Change rose 8.9K, while the employment change was down 177K in April, though average earnings rose more than expected.
Fedspeak:
In a discussion at the annual general meeting of the Foreign Bankers' Association in Amsterdam on Tuesday, Powell noted that the first quarter was notable for its lack of further progress on inflation. Nonetheless, he said that he was confident of inflation moving towards the Fed’s 2% goal. He called the data ‘mixed’ as prior data were revised lower.
Yields and Dollar:
The ten-year US yields were down nearly 1% to 4.45% at the time of MCX closing. Consequently, the US Dollar Index slid 0.17% to 105.14 despite hotter than expected US PPI data.
Upcoming data:
The US data on tap on May 15 include CPI (April), advance retail sales (April) and NAHB housing Index (May).
Outlook:
The US Federal Reserve downplaying hotter than expected US PPI data is positive for gold. Increase in Sino-US trade friction is supportive, too. The upcoming US CPI data will be crucial for the metal; however, Powell’s remarks have already blunted the impact so far. At the same time, it is obvious that he is not willing to cut rates and is ready to go for ‘higher for longer’ rate regime if inflation does not come down, which eventually will weigh on gold prices.
As retail sales data are also to be released simultaneously, the metal may be volatile. If both retail sales and inflation data top the forecast, gold will fall. The metal is expected to trade in a range of $2330 (Rs 71,500) to $2380-$2400 band (Rs 73,000 to Rs 73600). It is likely to be choppy and volatile.
Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, Views expressed are personal.