How to trade Gold ahead of US Fed outcome today? Check key levels here

Gold trading strategy today, July 31: Unless the US Fed is outrightly dovish, Gold is expected to fall in the coming days. Support for MCX October Gold contract is at Rs 67,600/Rs 66,200

Gold: Up as the US yields fall

Performance:

The spot gold was trading with a gain of nearly 1 per cent at $2,405 at the time of the MCX closing. The metal gained on dip in the US yields as the US bonds rose despite somewhat encouraging data out of the US. The MCX October gold contract at Rs 69,180 was up 0.81 per cent.

US Yields and the US Dollar Index

The ten-year US yields softened by around 0.89 per cent to 4.14 per cent, while the twos were down by nearly 0.75 per cent to 4.354 per cent when the MCX closed. The US Dollar Index slid by 0.05 per cent to 104.52 as the yields eased.

 

Data roundup:

The JOLTs job openings (June) came in at 8,184K versus the estimate of 8,000K jobs, while the prior data was revised higher from 8140K to 8230K. The number of jobs quits decreased to the lowest level since November 2020, which could be seen as a negative point in the report. Conference Board consumer confidence (July) at 100.30 topped the forecast of 99.70, though the prior data of 97.80 was revised lower to 97.80. 

Upcoming data:

This week is crucial to the metal as the US ADP, ISM manufacturing and non-farm payroll data are on tap. In addition, focus will be on the Bank of Japan's and the US FOMC monetary policy decisions due on July 31. The Bank of England will deliver its monetary policy decision on August 1.

 ETF Holdings:

Total known global gold ETF holdings stood at 82.462 MOz as of July 29 as the ETFs rose for the fifth straight week. Gold ETFs have expanded by 44 tons so far in July, the biggest inflow since March 2022.

Gold demand trends:

As per the World Gold Council, global gold demand rose 4 per cent Y-o-Y in Q2 2024 to 1,258 tonne, the highest ever Q2 demand since 2000. Gold demand rose on over-the-counter transactions among family offices, institutional and high net worth investors., which surged 53 per cent Y-o-Y to 329 tonne. However, demand for gold from the jewellery sector slumped 19 per cent Y-o-Y to a four-year low of 39 tonne. On the technology front, demand for gold rose 11 per cent Y-o-Y in industrial sector on its rising applications in AI technology. Mined gold production was up 4 per cent Y-o-Y to 929 tonne, a Q2 record.

Chinese demand weakens: High gold prices are taking a toll on the Chinese demand. As per a quarterly report by the China Gold Council, the country's demand for gold fell nearly 6 per cent to 524 tonne on Y-o-Y basis in the first half of 2024, which, as per Bloomberg estimates, implies a drop of 52 per cent in China’s jewellery demand.

Gold Outlook Today

The metal, as reflected in the rising global gold ETF holdings, is seeing considerable interest ahead of the US monetary policy decision as traders assign nearly 100 per cent probability that the US Fed will start cutting rates in September and is likely to cut rates at least twice this year. 

The upcoming US Presidential election is also leading to some interest in gold. The metal may remain volatile in the days ahead as the possible easing by the Fed is already discounted. The US Fed may choose to remain cautious on the rate outlook beyond September. 

The US data have been largely mixed; thus, the Fed may adapt a balanced approach at its FOMC meeting. In that case, we are likely to see a scenario of 'buy the rumour, sell the news'. Weak Chinese demand is another headwind for the yellow metal. 

Gold Support, Resistance levels

Unless the Fed is outrightly dovish, gold is expected to fall in the coming days. Support is at $2350/$2300 (MCX October Gold contract Rs 67,600/Rs 66,200). Resistance is at $2450 (Rs 70,500/$2485 (Rs 71400). The MCX prices are correspond to USDINR rate of Rs 83.72. 

==========================

Disclaimer: Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.