Gold to trade choppy amid war tensions; Sharekhan suggests 'Buy on dips'

Gold – Geopolitical concerns supporting the metal

 

Performance:

On November 28, spot gold traded between $2621 and $2650. The metal fell in the Asian session on a firmer Dollar but recovered on safe haven demand coming on concerns that the Russia-Ukraine war may take dangerous turns. Russia targeted Ukraine’s power systems in a new air strike with 91 drones and 97 missiles. Heightened geopolitical risks are supporting the yellow metal. 

 

As the US observed the Thanksgiving Holiday, intraday range was somewhat narrow. The metal was trading at $2642, up by nearly 0.2 per cent, at the time of writing this report.

 

The MCX February contract was at Rs 76,207, up 0.07 per cent. 

 

Data roundup:

The US data released on Wednesday were largely mixed: Personal Consumption Expenditure (PCE) price index rose 2.3 per cent year-on-year (Y-o-Y), whereas core PCE price index was up 2.8 per cent Y-o-Y (prior reading 2.70 per cent). 

 

PCE price index gained 0.2 per cent month-on-month (M-o-M) and was up 2.3 per cent Y-o-Y from 2.1 per cent in September. Core services prices climbed 0.4 per cent M-o-M, the most since March. on high stock prices.

 

Real consumer spending (October) at 0.1 per cent trailed the forecast of 0.2 per cent; however, the September reading was revised higher. Third quarter annualized GDP at 2.8 per cent matched the forecast but durable goods orders (October prel.) at 0.2 per cent trailed the estimate of 0.5 per cent. Continuing claims, like the previous week’s data, remained at a 3-year high.

 

On Thursday, Germany's Consumer Price Index (CPI) (November preliminary) came in at 2.2 per cent Y-o-Y (forecast 2.3 per cent) and -0.2 per cent M-o-M (forecast -0.7 per cent), whereas the Eurozone's consumer confidence (November final) at 5.3 trailed the forecast of 6.5.

 

Upcoming data:

Today, the Eurozone's CPI (November preliminary), Germany's retail sales (October) and employment (November) and France's GDP (3Q final) will be the main attractions for traders.

 

China’s gold demand:

China’s gold imports from Hing Kong fell 4.6 per cent the month in October and were down 43 per cent from a year ago level on subdued retail demand amid sluggish economic recovery and high prices, though investment demand remains strong.

 

Geopolitics:

President Vladimir Putin warned on Thursday that his forces could strike decision-making centres in Kyiv with new ballistic missiles in response to attacks on Russia with Western missiles.

 

A senior Biden administration official told reporters that Ukraine should look hard at lowering the recruiting age for its military to boost manpower and counter Russia's progress. President-elect Trump is considering Keith Kellog as a special envoy for Ukraine. The latter had earlier presented a plan to end war by freezing the battle lines and forcing Russia and Ukraine to negotiate. 

 

US dollar index and yields:

The US dollar index was at 106.20, up 0.1 per cent on the day. On November 27, the Index fell to 105.86, the lowest since November 13 on slump in the US yields as Trump announced Scott Bessent, a deficit hawk, as the next US treasury secretary.

 

The US bond market was closed due to the Thanksgiving holiday.    

 

ETF:

Total known ETF holdings of gold, after rising for six straight days, fell to 83.154 Moz on November 27.

 

Outlook:

Spot gold is expected to be choppy on crosscurrents of haven demand on geopolitical worries and healthy risk appetite. Although Israel and Hezbollah have agreed to a ceasefire, the Russia-Ukraine war has emerged as a source of immense geopolitical concerns as stakes are high.  Talks of handing nuclear weapons to Ukraine will escalate the conflict; the possibility of a nuclear war is not really non-existent.

 

Dip buying is the preferred strategy in this scenario.

 

Support is at $2600 Rs (75,000)/$2565 (Rs 74,000). Resistance is at $2655(rs 76,600)/$2665 (Rs 76,800O)/$2700 (Rs 77,800).       

 

(This article is by Praveen Singh – Associate VP, Fundamental Currencies and Commodities, Mirae Asset Sharekhan. View expressed are his own.)