Gold likely to be under pressure in near-term; check support levels

Spot gold tumbled to the lowest level in nearly 7 weeks on November 12 as investors piled into risk assets on optimism over the US growth prospects with Trump at the helm

Gold: Falling as investors pile into risk assets amid rising US yields and rallying dollar

Performance:

Spot gold tumbled to the lowest level in nearly 7 weeks on November 12 as investors shunned the yellow metal to pile into risk assets on optimism over the US growth prospects with Trump as the next US president. His proposed economic policies of tax cuts and deregulation are being taken as favourable to the US growth, though the increase in tariffs will worsen inflation.

 

Gold has tumbled nearly 7 per cent since it hit its record high of $2790 on October 31.

 

 

Gold at $2695 is down around 0.65 per cent at the time of writing this report. The MCX December gold is at Rs 74,800.

 

Bitcoin:

Investors are rotating out of gold into bitcoin and other risk assets; bitcoin reached a fresh record high above $89K on November 12. BlackRock's Bitcoin ETF has now surpassed its gold ETF in terms of assets under management. Bitcoin has rallied 25 per cent this week as it is expected that the US government may increase its Bitcoin reserves of 232,000 to over a million bitcoins.

 

US yields and dollar:

Both US yields and the dollar index are surging as the Trump trades are once again gaining momentum. The US bonds are also being hit: the ten-year yields have surged to 4.43 per cent, up around 2.8 per cent on the day. The two-year US yields at 4.36 per cent are up around 2 per cent. Both ten-year and two-year yields are at the highest levels since July 2024.

 

The US dollar index has taken out the psychological resistance at 106, the highest since June 2024 as the Euro, Yen, and Pound are slumping.

 

ETF:

Total known global gold ETF holdings fell for the seventh straight day on November 11 to 83.51MOz as the holdings are down 2.4 per cent this year. The SPDR Gold Trust, the world's biggest physically backed gold ETF, saw an outflow of $1 billion between November 4 and November 8.

 

Data update:

US NFIB small Business optimism (October) improved to 93.70 from 91.50 in October and was above the estimate of 92.

 

Upcoming data and events:

Today's US data releases include the crucial CPI (October). We have PPI (October) and retail sales advance (October) data slated to be released later in the week. Markets look forward to Fed Chair Powell's speech on economic outlook scheduled on November 15.

 

Fedspeak:

Federal Reserve Governor Waller said that he remains opposed to the US digital concept. Federal Reserve Bank of Richmond President Barkin said that the Fed is in a good place to respond to the evolving economy. He added that price sensitive US consumers are helping curb inflation, and the labour market has remained resilient.

 

Outlook

Gold is likely to be under pressure in the near term on growth optimism. Risk-on sentiments will lead to further ETF outflows as investors flock to Bitcoin and other risk assets. The safe-haven appeal of the metal is dented for the time being. Support is at $2,580 (Rs 74,500)/$2,538 (Rs 73,200)/$2,500 (Rs 72,000).

 

Gold may fall to $2,500 (Rs 72,000) in the near term. Resistance is at $2,638/$2,660. Despite the ongoing selloff, medium to long term prospects remain bullish. Investors will turn their focus to issues of fiscal deficit, alarmingly high debt/ gross domestic product (GDP) ratio, lingering concerns about the Chinese economy, de-dollarisation, etc. sooner rather than later.  (This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.)