Gold – Recovering after Monday’s sell-off
Performance
On January 28, spot gold traded between $2730 and $2760 as, once again, it took support at the crucial level of $2730 to extend its recovery following the selloff on January 27. The yellow metal tumbled more than 1 per cent at the start of the week on poor risk appetite as the US stocks slumped on technology valuation concerns triggered by China’s AI startup that upended the IT field on being cost-effective.
Gold prices recovered on Tuesday in line with the US equities.
Gold, at the time of writing this report, was changing hands at $2,756, up around 0.54 per cent on the day. The MCX February gold contract at Rs 80,164 was up nearly 0.74 per cent.
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Data roundup
The US durable goods orders data (December preliminary) came in at -2.2 per cent Vs the forecast of 0.6 per cent as prior data was revised lower from -1.2 per cent to -2 per cent, though ex transportation data at 0.3 per cent showed an improvement over the prior month's data of -0.2 per cent and matched the forecast. Conference Board Consumer Confidence data (January) came in at 104.10 that trailed the estimate of 105.60.
Tariff threats back in focus
The US President, once again threatened to impose tariffs as he wants to impose across-the-board tariffs that are much bigger than 2.5 per cent. He aims to protect his country’s interest through tariffs. Negating the idea of starting with a global rate of 2.5 per cent, he wants to make imports of computer chips. pharmaceuticals and steel costlier. Renewed tariff threats weighed on industrial commodities on Tuesday.
ETF
As on January 27, total known global gold ETF holdings stood at 83.059MOz, the lowest since January 10, though, overall, the ETFs have recorded a small net inflow of around 0.20 Moz YTD.
Upcoming data
Focus will be on the US 4Q A GDP data, to be released on January 30, which is likely to show an expansion of 2.7 per cent as compared to 3.1 per cent in 3Q 2024. Weekly job data and pending home sales (December) will also be on investors' radar.
Upcoming event
The US FOMC monetary policy, to be announced tonight, will be the major market moving event. The Fed is expected to keep the Fed Fund rate unchanged at 4.25 per cent-4.50 per cent; however, traders will be interested in the Fed's assessment of economy, employment and inflation along with the Fed's view on its monetary policy. The Fed changed its stance in its December 18 FOMC meeting to turn its focus away from the job market to containing inflationary pressure on account of elevated inflation readings in the past months that had stalled the progress on disinflation. However, markets are somewhat hopeful ahead of the FOMC decision as the December CPI readings were softer-than-expected on some counts like core CPI y-o-y. Similarly, PPI data were cooler-than-expected across-the-board.
LBMA survey 2025
As per the LBMA Survey 2025 results, some of the analysts see gold reaching as high as $3290 in 2025 as the expected average for 2025 is $2736.69, around 14.70 per cent higher than the 2024 average of $2386.20.
Impact of DeepSeek
China's AI startup DeepSeek has roiled the markets due to its cost effectiveness thus putting high valuation of US technical stocks in question. As US markets tumbled, yields fell, which is somewhat positive for the yellow metal.
US Dollar Index and Yields
The US Dollar Index regained its poise after three straight days of losses as it rebounded on renewed tariff threats. The Index, at the time of writing this report, was at 107.95, up around 0.58 per cent on the day, though it is still down over 2 per cent from its cycle high of 110.18 reached on January 13.
The ten-year US yields fell to 4.5 per cent in the wake of the rout in the US markets, though yields recovered a bit on Tuesday ahead of the FOMC decision. The ten-year US yields at 4.57 per cent were up nearly 1 per cent on the day. The thirty-year US yields followed the suit and at 4.81 per cent were up around 0.80 per cent up.
Outlook
Gold recovery is attributed mainly to a recovery in the US stocks as gold of late is trading more like a commodity than a currency. It is rising on improved risk appetite and gaining mostly on lower yields and softer Dollar. The metal is struggling whenever risk appetite is dented. Market participants are hopeful that the US CPI and PPI data (December) may help the Fed soften its stance on inflation control. However, it looks somewhat unlikely as the US inflation around 3 per cent and core CPI around 3.2 per cent are way above the Fed’s target goal of 2 per cent. It is highly possible that the Fed would continue to maintain a hawkish stance as it would seek more data on inflation to assess the progress on disinflation. Gold, this year, is up over 5 per cent. The Fed risk looms large.
India may impose additional import duty on gold in its upcoming budget on February 1, which makes selling a risk proposition; thus, only short-term selling is advisable.
Support is at $2730 (Rs 79,400) /$2700 (Rs 78,600)/$2688 (Rs 78,200). Resistance is at $2790 (Rs 81,100)/$2800 (Rs 81,400).
(Disclaimer: Praveen Singh is Associate VP of fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)