Buy dips in Gold as low China bond yields, economic uncertainty bode well

Gold rate today: A weaker-than-expected US job data may help the metal test the crucial resistance in $2,690-$2,700, says analyst at Mirae Asset Sharekhan

Gold: Buoyed by China's central bank gold buying but remains vulnerable

 

Performance:

 

Spot gold traded between $2,633 and $2,665 on January 7. The metal, buoyed by central bank buying, tested the key resistance at $2,665 before correcting lower on strong US data on Tuesday.

 

Spot gold, at the time of writing this report, was changing hands at $2,651, up around 0.60 per cent on the day as the MCX February gold contract, at 77,576, was up 0.54 per cent.

 

Data roundup:

 

US November trade deficit came in at $78.20 billion, a tad better than the expected $78.30 deficit. More importantly, JOLTs and ISM services Index readings were encouraging. JOLTs job openings (November) at 8,098K, topped the estimate of 7,740K as the prior data was revised higher from 7,744K to 7,839K. On flip side, quits rate declined from 2.1 per cent to 1.90 per cent, indicating difficulties in finding new jobs. 

 

 

ISM Services Index (December) rose sharply from 51.10 in November to 54.10 as against the estimate of 53.50. In addition, ISM Services prices, at 64.40, were way hotter than the forecast of 57.50 and above the prior data 58.20 as ISM services employment at 51.40 continued to remain in the expansion zone.

 

US Dollar and yields:

 

The 10-year US yields broke off to new cycle highs on ISM services and JOLTs openings data. The ten-year yields surged to 4.704 per cent, the highest level since April 26. The yields, at 4.679 per cent, were up 1.21 per cent on the day. The 2-year yields, at 4.279 per cent, were up by merely one bps though. The US Dollar Index, at 108.45, was up around 0.21 per cent at the time of writing the report.

 

Upcoming data:

 

US ADP data (December) to be released on will be the major attraction for traders.

 

Gold ETF:

 

Total known global gold ETF holdings at 82.797 Moz were lower than the level of 82.845MOz seen at the end of the last week.

 

Central Bank gold buying:

 

China added gold for a second straight month as it bought 10 tonnes of gold in December, that took its gold reserves from 72.96MOz in November to 73.29Moz. China buying gold at historically expensive levels is being seen as a positive signal for the yellow metal.

 

As per World Gold Council, central banks bought a net 53 tonnes of gold in November as the National Bank of Poland, emerging as the largest buyer, bought 21 tons.

 

US Mint Gold Coin Sales:

 

US Mint said that American Eagle gold coin sales totalled 412,500 ounces in 2024 as compared with 1092,000 Ounces in 2023, which translates into a decline of 62% y-o-y.

 

China's gold demand:

 

China's gold demand surged in November 2024 as imports through Hong Kong more than doubled from the previous month.

 

Gold Outlook:

 

Sharp decline in Chinese bond yields, economic uncertainty over Trump's policies, and healthy pace of central bank buying gold are positive factors for the yellow metal. The 10-year Chinese bond yields at 1.61 per cent are near record low as the yield difference with the US has widened to more than 300 bps. 

 

Yuan weakness and concerns about Chinese economy are also supportive for the yellow metal. However, surging US yields and a firmer US Dollar remain the dominant risk factors. Strong ISM services data may lead to a shallow correction, though dip buyers are likely to emerge on the aforesaid positive factors. 

 

Buying the dips with stop-loss below $2,607 is preferred over chasing the rallies. A weaker-than-expected US job data may help the metal test the crucial resistance in $2,690-$2,700 (Rs 78,700-79,000) zone. At the same time, buying position should be closed in case of a strong nonfarm payroll report.

 

Interim resistance is at $2,665 (Rs 78.000). Support is at $2,626 (Rs 76,800)/$2,607 (Rs 76,300).  ===========================  Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.