Gold price today: How to trade gold ahead of US Fed rate decision tonight?

Gold price today: Spot gold is likely to consolidate ahead of the US FOMC monetary policy decision due tonight

Gold: A short-lived bounce back possible on the Fed rate cut

 

Gold Performance:

 

Spot gold is changing hands at $2662, up 0.05 per cent. The MCX February contract at Rs 76,945, up 0.08 per cent.

 

The metal is little changed on encouraging US retail sales (November) report that has followed a robust S&P US services PMI report released on December 16. 

 

Data roundup:

 

US retail sales advance (November) came in at 0.7 per cent M-o-M as against the forecast of 0.6 per cent as the prior data was revised higher from 0.4 per cent to 0.5 per cent. Retail sales, ex-auto and gas, at 0.2 per cent trailed the forecast of 0.4 per cent, though the prior data was revised higher from 0.1 per cent to 0.2 per cent. Retail sales control group at 0.4 per cent matched the forecast. 

 

 

However, industrial production (November) at -0.1 per cent underwhelmed as it lagged the 0.3 per cent forecast.

 

Germany's data were mixed as IFO expectations (December) came in at 84.4 (forecast 87. per cent), whereas ZEW Survey expectations (December) at 15.70 topped the estimate of 6.90. The Eurozone's ZEW survey expectations improved from 12.50 in November to 17 in December.

 

The UK's employment report was strong as average weekly earnings 3M/Y-o-Y (October) at 5.2 per cent beat the estimate of 4.6 per cent as the prior data was revised slightly higher. Employment change 3m/3m rose to 173K, compared to the expectation of 5K as previous data was revised higher. NAHB housing market index at 46 lagged the estimate of 47.

 

US Dollar and yields:

 

The US Dollar and the yields have been gaining upward traction, though slightly lower currently on the US industrial production data, on a stellar S&P US services PMI report released on December 16 that showed that the S&P services PMI (December preliminary) came in at 58.5 versus the forecast of 55.80.

 

The US Dollar Index rose past 107 before slipping to 106.77, down 0.10 per cent on the day as the US industrial production data disappointed. The ten-year US yields at 4.38 per cent, are down 0.32 per cent after rising to 4.438 per cent -- the highest since November 20. Similarly, 2-year yields at 4.24 per cent, are down around 0.2 per cent on the day after rising to 4.287 per cent, the highest since November 26.

 

Upcoming data and event:

 

Today's US data include housing starts (November). Traders will also monitor the Euro-zone's CPI data (November final).

 

FOMC rate decision:

 

The US Federal is expected to slash benchmark Fed fund rate by 25 bps to 4.25-4.50 per cent range. However, the US Fed may hint at a temporary pause after this rate cut as the key US data like nonfarm payroll, GDP growth rate, ISM services, etc reflect strength in the US economy amid sticky inflation as reflected in the November CPI and PPI readings. Thus, the pause is expected to be a hawkish one; thus, rally in the metal coming on rate cut might be capped.

 

ETF holdings:

 

Total known global gold ETF holdings fell for the second day to 82.667 MOz, lowest since August 22, on December 16.

 

 India's trade deficit widens to record:

 

India's deficit ballooned to record $37.80 billion in November as gold demand soared. India's gold imports surged to a record high of $14.80 billion in November.

 

Geopolitics:

 

Geopolitical scenario remains mixed, though uncertain.

 

Ukraine claimed the responsibility of killing Lt. Gen. Igor Kirillov, the head of the Russian Armed Forces' Radiological, Chemical and Biological Defense Troops, on December 17. Ukrainian officials said the killing was carried out by the country's primary domestic intelligence agency, known as the SBU.

 

Israel and Hamas may strike a ceasefire deal shortly. Bloomberg reported that a working group from Israel is in Doha this week to re-establish relations with mediators in the event of a breakthrough in negotiations with Hamas.

 

Outlook:

 

Spot gold is likely to consolidate ahead of the US FOMC monetary policy decision due tonight. A short covering-led bounce is not ruled out before the Fed's decision. However, the rate cut induced rally may be short-lived on a possibility of a hawkish pause guidance by the Fed. 

 

The ETF flows turned negative in November after six straight months of net inflows. Even December flow is negative. Thus, barring geopolitical tensions flaring out, the metal may struggle to rally meaningfully, though a brief inflation-hedge rally post-rate cut is possible. The metal may trade in the range of $2600 (Rs 75,500)-$2675 (Rs 77,700) in the near-term. Bias remains down as we look for a test of the support around $2600 in the coming days unless geopolitical situation worsens.    =================  Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.