Gold price: Yellow metal rallies as Russia-Ukraine war takes ominous turn

Spot gold, at the time of writing this report, was trading nearly 0.77 per cent higher at $2,670, as it extended its rally to the fourth straight day. The MCX December gold contract was at Rs 76,600, up around 0.75 per cent on the day. The metal is gaining on heightened geopolitical tensions as traders fear that the Russia-Ukraine war is likely to worsen with events taking dangerous turns.

 

On Thursday, Ukraine said that Russia had launched an ICBM, the first time in this war, at the Ukrainian city of Dnipro. The ICBM missile attack has come on the heels of Ukraine firing long-range American ATACMS missiles and the British Storm Shadow missiles inside Russia after the approval of the US and the UK to use these missiles. Russia, in retaliation, has lowered its nuclear doctrine threshold, which makes the use of tactical nuclear weapon probable. 

 

Data roundup:

The US data released on Thursday were mixed: Philadelphia Fed business outlook (November) came in at -5.50 (forecast 8, prior 10.3); initial jobless claims dipped to 213K from 219K but continuing claims soared to 1908K from 1872K); Leading Index (October) at -0.4 per cent trailed the forecast of -0.30 per cent; existing home sales (October) at 3.96M were slightly better than the forecast of 3.95M, though September data was revised a tad lower.

 

The quarterly Census of Employment and Wages (QCEW) report:

The latest report of QCEW, released on November 20, hints at further downward revisions in BLS (Bureau for Labour Statistics) nonfarm payroll report. The August QCEW report had shown that the BLS overstated the nonfarm payroll figure in the 12 months to March 2024 in the tune of 818,000 jobs.

  Upcoming data:

Today's major US data on the cards include S&P PMIs (November prel.) and University of Michigan sentiment and inflation expectations (November final readings). Traders will monitor PMIs out of Japan, Germany, Eurozone, and the UK. In addition, Japan’s inflation, Germany’s GDP and the UK’s retail sales will also be in focus.

 

ETF:

Total known global gold ETF holdings improved from 82.873 MOz--the lowest since August 29-- to 82.965Moz as on November 20.

 

The US Dollar Index and yields:

The 10-year US yields, after hitting the psychologically crucial level of 4.50 per cent on November 15--the highest since May 31-- slumped nearly 3 per cent as traders, spooked by worsening geopolitical situation, sought refuge in the bonds. The yields at 4.41 per cent were nearly flat on the day though. The 2-year US yields at 4.31 per cent were down nearly 1.50 per cent from the cycle high level 4.3752 per cent recorded on November 15. The US Dollar Index at 106.90 was up around 0.30 per cent on the day after it reached 107.064 level -- the highest since November 1, 2023-- on November 14.

 

Bitcoin:

Institutional investors shunned gold to pile into Bitcoin in the wake of Trump's victory in the recently concluded US Presidential elections as investors are positive on Bitcoin due to a possible endorsement by the incoming Trump administration. Bitcoin has rallied around 46 per cent since October-end, when gold peaked, as it hit a fresh record high of $98K on November 21.

 

Gold in AI:

Per the World Gold Council, with the advancement of AI technology, demand for gold is likely to increase as it would be required in powerful hardware on account of its properties like superior conductivity, resistance to corrosion, etc.  In fact, AI-proliferation has been instrumental in recovery in gold usages.

 

Outlook:

Although it is too early to say whether gold has made a bottom, it is likely to recover further to challenge the stiff resistance at $2687 (Rs 77,100) as geopolitical situation remains worrisome and the US data, at the best, are mixed.

 

Next major resistance levels are $2700 (Rs 77,500)/$2712 (Rs 77,800). Support is at $2661 (Rs 76,300)/$2650 (Rs 76,000)/$2616 (Rs 75,000)/$2604 (Rs 74,700).  (This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.)