Gold rallies on cautious US Fed; check target prices, support levels here

Spot gold, having risen to a fresh record high of $2,450 on Monday, consolidated its recent gains on Tuesday. Gold rallied sharply higher on May 20 as the US Federal Reserve is content with waiting further for inflation to come down with some of the members continuing to see the Fed monetary policy as restrictive. There were no major US data releases on May 20 and May 21, which also helped the metal remain buoyant.

At the time of the MCX closing spot gold was trading at $2,420, down $6 from the closing level on May 20. The corresponding MCX June contract price was Rs 74,008, down 0.48 per cent on the day.     

 

Geopolitical watch:

The UN has expressed concerns about difficulties in getting medical aid transferred within Gaza as Israel continues to press ahead with its assault.    

Meanwhile, Russian forces have launched tactical nuclear weapons drills in the country’s southern military district close to Ukrainian border as a response to threats by the West.

ETF holdings:

In a somewhat positive development for the metal, the total known global gold ETF holdings were up for the fifth straight day on May 20 and stood at 80.85 Moz.

Fedspeak: Mostly neutral

Fed Vice Chair for Supervision Barr said that Q1 inflation was disappointing and called for a higher for longer rate regime. Fed's Bostic said that inflation is likely to fall this year and the Fed is open to all possibilities. 

Fed's Daly was not yet confident on inflation, though she does not see any evidence of a need to raise rates. Fed's Jefferson called the policy rate to be restrictive territory. Cleveland Fed President Loretta Mester said on Monday that policy was restrictive, but central bank officials needed to wait for gaining more confidence on inflation before cutting interest rates.

Yields and Dollar:

The ten-year US yields at 4.41 per cent were down by nearly 0.59 per cent as the US Dollar Index traded with a minor gain of 0.10 per cent at 104.67.

China hikes margin requirements for gold trading

Due to huge volatility in gold prices, Shanghai Gold Exchange is further raising margin requirements to 10 per cent from 9 per cent for some gold contracts from Tuesday.

China’s bullion imports slowed down in April

China’s bullion imports slowed last month due to high prices affecting demand. Overseas purchases of physical gold fell to 136 tons in April, which is a 30 per cent decline from March. April import volume is the lowest volume for the year

Upcoming data

Market participants look forward to the FOMC minutes for the May FOMC meet, which will be released on May 22. Apart from the FOMC minutes, US existing home sales (April) and the UK’s CPI (April) data will also be on traders’ radar.

Outlook

The cautious stance of the US Federal Reserve on its monetary policy is somewhat positive for the metal; thus, inflation hedge buying theme dominates.  FOMC minutes of the May meeting will be crucial to gold moves. 

Buying the dips continues to be the preferred strategy. Sino-US trade tensions, concerns emanating from Eastern Europe, and the Middle East war continue to support the yellow metal. 

Gold is expected to rise to the $2,500 level (Rs 76,500) in the coming weeks. Support is seen at $2,400 (Rs 73,400) /$2,380 (Rs 72,800). Resistance is seen at $2,450 (Rs 75,000) /$2,475 (Rs 75,600).

(Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, Views expressed are personal.)