Gold has major resistance at 74,500, buy the dips in near-term: Sharekhan

Performance

While somewhat softer than expected US CPI data (April), which were released on May 15, boosted gold prices on a rise in rate cut probability, the metal fell Thursday on somewhat hawkish Fedspeak and hotter than expected US imports and exports index data.

The metal was changing hands at $2381 at the time of the MCX closing, which is down 0.20 per cent from Wednesday’s closing level. MCX June contract was down 0.19 per cent at the LTP of Rs 72,964.   

Geopolitical watch

Devastating war continues in Gaza. The International Court of Justice (ICJ) will hold public hearings Thursday and Friday on South Africa's request for ordering Israel to withdraw from the city of Rafah. Israel defence minister Gallant said that he is opposed to Israeli military control or taking responsibility for governing Gaza once the war ends.     

 

ETF holdings

Total known global gold ETF holdings were up for the second straight day on May 15 and stood at 80.583 Moz, which is higher than the holdings level seen at the end of the last week.

Data and event round up

The US data continue to throw negative surprises as high borrowing costs have started affecting the US economy. Data released Thursday were underwhelming as the US Philadelphia Fed business outlook, housing starts, and industrial production data trailed their respective forecasts, which could have supported the metal; however, import and export price indices were hotter than expected, which aided in rebound of the US yields and the Dollar index, which in turn weighed on it to limit its upside.

 Import price Index (April) m-o-m and y-o-y readings came in at 0.90 per cent and 1.10 per cent respectively Vs the respective forecasts of 0.30 per cent and 0.40 per cent. Similarly, the export price index m-o-m and y-o-y were noted at 0.50 per cent and -1 per cent respectively as against the respective forecasts of 0.20 per cent and -1.10 per cent.

Fedspeak: Slightly hawkish

The Fed’s Williams said that he does not see the need of rate cuts. Kashkari and Goolsbee see a case of higher for longer rates. Richmond Federal Reserve Bank President Thomas Barkin said that that the latest Consumer Price Index (CPI) showed that inflation is not where the Fed is trying to get. Mester called for keeping the rates higher for longer. Fed’s Mester also called for higher for longer rates.

Yields and Dollar

The ten-year US yields at 4.375 per cent were up nearly 3 bps at the time of MCX closing. Consequently, the US Dollar Index at 104.47 was up 0.26 per cent.

Upcoming data

The US data on tap next week include new home sales, S&P Global US manufacturing and services PMI, durable goods orders, and University of Michigan sentiments along with both short- and long-term inflation expectations. Apart from the data, market participants will take cues from Fed speakers including Fed Chair Powell also, as Fed officials’ views continue to influence rate cut expectations.

Outlook

Hawkish Fedspeak calling for higher for longer rate regimes and lingering inflation concerns are likely to cap the upside in the metal in the short term. Lack of further escalation in geopolitical tensions has removed a key positive catalyst for the metal. In such a scenario, gold is relying mostly on the Dollar and yields. The metal is expected to consolidate its recent gains. It may trade between $2350 (Rs 72,000) and $2400 (Rs 73,500) in the short term. Gold is facing stiff resistance at $2400. The next major resistance is the all-time high level of $2432 (Rs 74,500).  Buying the dips is a preferred option unless the $2400 level is conquered.

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