Gold rate today: Analyst advises 'Sell on rally' for Gold post Fed rate cut

Gold price: The yellow metal faces risk from fickle bond yields as deficit concerns loom large. Near-term upside is limited, says Praveen Singh of Sharekhan

Gold back above $2,700 but vulnerable

 

Gold Performance:

 

On November 6, gold tumbled nearly $100 to $2,653 -- its lowest level since October 15-- as Donald Trump regaining the White House stoked deficit concerns on his pro-growth stance that will lead to increased borrowings. The US yields and the dollar index surged, which pressurised the metal. Profit booking aggravated the sell-off.

 

Spot gold extended its decline to $2,463 on Thursday before it started recovering off the 50-DMA support at $2,639. Gold extended its recovery on sharp decline in the US yields that shifted the US yield curve lower as the anticipated Federal Open Market Committee (FOMC) monetary policy decision fuelled a rally in the US bonds. The dollar index corrected sharply lower. 

 

 

Spot gold closed with a gain of nearly 1.78 per cent at $2,707. 

 

Dollar index and US yields:

The ten-year yield surged to 4.48 per cent on November 6, the highest since July 1. However, the US yields slumped to 4.23 per cent on November 7 after the Fed that slashed the Fed fund rate by 0.25 per cent to 4.50-4.75 per cent target range. 

 

The US dollar index, which spiked 1.61 per cent on November 6 to 105.44 (the highest level since July 3), followed the yields on Thursday to settle lower at 104.35, down 0.71 per cent on the day. 

 

Data and event roundup:

The Bank of England, as expected, cut benchmark rates by 25 basis points (bps) to 4.75 per cent, though the Bank warned against the United Kingdom's (UK) budget inflation hit and it may not cut rates too quickly unless the economy evolves as expected. The UK plans a pound 90.40 billion of yearly spending, almost half of which is to be financed through borrowing.

 

The US data released on Thursday showed that the unit cost of labour rose 1.90 per cent (forecast 1 per cent) in Q3 as the Q2 figure was revised higher to 2.4 per cent from 0.4 per cent. The data complicates the Fed's decision to cut rates in future. Initial jobless claims came in at 221,000 (forecast 222,000), around the pre-Covid level; however, continuing claims at 18,92,000 were higher than the forecast of 18,73,000. 

 

FOMC decision- The Fed cut rates by 25 bps stating that it was in support of its goals. The Fed Chair Powell said in his presser that the US economy was strong and some downside risks seem to have diminished. He cautioned that rate cut was not a signal and they can adjust the rate cut pace. He also mentioned that yields were moving higher in anticipation of stronger growth, not due to inflation expectations. 

 

Upcoming data:

 

Today's US data include University of Michigan sentiment (November preliminary) and inflation expectations. Traders will closely monitor US Consumer Price Index (CPI) and Producer Price Index (PPI) data slated to be released next week.

 

India's gold demand in festive season: The Economic Times reported that data collated by India Bullion and Jewellers Association (IBJA) show that 47 tonnes of gold were sold during the Dhanteras-Diwali period, 15 per cent less than last year.

 

ETF and Bitcoin:

 

Total known global ETF gold holdings fell for the fourth straight day, which took the holdings level down to 83.739 Moz on November 6, the lowest level since October 16.

 

The Donald Trump administration has proposed the Bitcoin Act, which, if passed, designate Bitcoin as a strategic reserve asset. The leading cryptocurrency hit an all-time level of $76,423 on a possible shift in the US economic policy.

 

Outlook:

 

FOMC outcome is somewhat positive for the metal as bond yields and dollar fell. The Fed's assessment that economy is strong does not gel with the rate cut decision. The Central Bank seems to be concerned about weakness in the labour market. However, the yellow metal faces risk from fickle bond yields as deficit concerns loom large. Sentiments about gold are still quite bullish, which means that the metal remains at risk of falling further in near term. Upside may be limited in near future. Selling into rallies is advisable unless gold starts gaining upward traction even with yields going up. ETF outflow is negative for the metal. 

 

Support is at $2,685/$2,639/$2,600 and Resistance is at $2,715/$2,730/2,750.

 

===========  Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities, Sharekhan by BNP Paribas. Views expressed are his own.