Gold Strategy: Buy the dips towards Rs 71,400; Support near Rs 71,500

Performance

Commodities have come under pressure this week on rising bond yields amid sticky inflation concerns. 

The US yields shot up sharply in the first half of the week on weak auction results, hawkish Fedspeak and inflation concerns. The ten-year US yields rose to 4.638 per cent, the highest since May 2, on May 29. 

The Fed's Kashkari warned earlier this week that a rate hike is not entirely ruled out. Spot gold fell to $2322, the lowest level since May 9, on May 30, before recovering on tepid US GDP price Index data (Q1) and pending home sales (April). 

 

The metal was trading at $2344, down 0.20 per cent on the day when the MCX closed. The MCX Gold August contract was down by 0.11 per cent at its LTP of Rs 72,193. Risk appetite remains weak as wider markets swoon.

Data round up
 

The US data released Thursday showed that the estimate of Q1 GDP matched the forecast of 1.30 per cent; however, it was below the previous estimate of 1.60 per cent as consumer spending slows down. 

Weekly jobless claims at 219,000 were slightly higher than the expected data of 217,000, while continuing claims at were below the forecast. Pending home sales (April) were noted at -7.70 per cent m-o-m as against the forecast of -1 per cent.

Yields and the US Dollar Index
 

The ten-year yields surged to 4.6357 per cent on May 29, thus reaching the highest level since May 2. However, the yields retreated on May 30 on weaker than expected US macroeconomic data. The ten-year yields were down 1.45 per cent to 4.55 per cent when the MCX closed, whereas the US Dollar Index at 104.67 was down 0.44 per cent on the day.

Fedspeak
 

Fed’s Williams said Thursday that he expects the US inflation to be 2.50 per cent this year and 2 per cent next year as inflation is expected to moderate in the second half of the year.

Upcoming data
 

Traders look forward to Friday's US PCE deflator inflation data (April) for clues to the progress on the inflation front and the Fed's possible path of its monetary policy. Apart from that, personal income (April) and personal spending will also be in focus. China's PMIs (May) will also be released on May 31.

Gold ETF holdings
 

Total known global gold ETF holdings were up by 0.02 Moz to 80.60 Moz on May 29, though holdings were lower than last week's ending level of 80.6866Moz.

Geopolitical watch
 

It has been reported that fierce street fighting and heavy Israeli bombarding continues in Rafah in which 53 people have been killed in the last 24 hours.

Swiss Gold exports
 

Gold shipments from Switzerland, Europe's key refining hub, fell to 123.6 tons in April from 146.80 tons in March on decline in sales to China. Sales to China fell 49 per cent to 36.50 tons, though shipments to India more than tripled to 24.60 tons and sales to Turkey increased to 9.95 tons.

Outlook
 

Traders are expected to be cautious ahead of the US PCE deflator data to be released Friday. Support is seen at $2,324 (Rs 71,500) /$2,300 (Rs 70,800). A hotter than expected US inflation will weigh on gold. Still, traders are expected to buy the dips towards $2,320 (Rs 71,400) on expectations of slightly soft data as yields dipped on May 30. Resistance is at $2,350 (Rs 72,400) /$2,365 (Rs 72,800)/$2,380 (Rs 73,300).

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