Gold strategy: Yellow metal mildly lower; analysts advise buying the dips

Gold prices today: Spot gold was trading with a slight loss of 0.19 per cent at $2,468 at the time of the MCX Closing. Weakness could be attributed to weakness in outside markets as most of the commodities fell despite largely softer than expected US PPI data (July). The yellow metal traded in a relatively narrow range of around 1 per cent.

Data roundup: US PPI largely softer than expected

US PPI rose in July at a slower than expected pace as the services costs declined for the first time this year. The PPI for final demand (July) was up 0.10 per cent m-o-m Vs the forecast of 0.20 per cent increase. The PPI ex food and energy was unchanged (forecast +0.20 per cent) in July, which is the slowest pace since March.

Services costs fell by 0.20per cent; however, prices of goods increased 0.60per cent, the most since February. PPI Ex food and energy data rose 2.40 per cent y-o-y (forecast 2.60per cent) as compared with 3per cent in June.

PPI final demand rose 2.20 per cent y-o-y (forecast 2.30per cent). However, PPI ex food, energy and trade at 0.30 per cent m-o-m was hotter than the estimate of 0.20 per cent. Similarly, PPI ex food, energy and trade at 3.30 per cent was hotter than estimate of y-o-y basis, too.

 

The UK's monthly job report for June was mixed as unemployment rate fell from 4.40per cent in June to 4.20per cent in July (forecast 4.0per cent), though jobless claims surged to 135K in July from 36.20 in June. The Euro-zone's ZEW survey expectations (August) came in at 19.20, which trailed the forecast of 34.

US Yields and the Dollar Index: Down on the US PPI data

The ten-year US yields were down 1.29 per cent to 3.86 per cent on largely subdued US PPI data. The two-year US yields were back 4 per cent as the yields dipped over 1.50 per cent to 3.96 per cent. Consequently, the US Dollar Index slid 0.40 per cent to 102.72, the lowest since August 5. Improved risk appetite also weighed on the US Dollar Index.

ETFs: July a strong month

Total known global gold ETF holdings fell to 82.20MOz on August 12 from 82.293 MOz on August 9. As per the World Gold Council, global gold ETFs had their strongest month of inflows since April 2022 as North American funds also piled into the metal.

Global gold-backed exchange-traded funds (ETFs) saw their third consecutive month of inflows in July as they added $3.7 billion. The Council reported that a combination of the July inflow and a 4 per cent rise in the gold price pushed total global assets under management (AUM) 6per cent higher to US$246bn, which is a new month-end record. Collective holdings concluded July with a 48t increase, reaching 3,154t.

Upcoming data: US CPI data crucial

Today's US data on tap include crucial CPI inflation (July). The UK's CPI data (July) will also be released today.  The Euro-zone's second quarter GDP growth rate, employment and industrial production data will also be on the deck today.

The UK's second quarter GDP growth rate and Chinas retail sales, industrial production and home prices data will be released on August 15.

US Retail sales advance (July), import price index, industrial capacity and weekly jobless claims data will be released on August 15.

Outlook: Buying the dips preferred

Traders are expected to buy dips ahead of the US CPI data on expectations of subdued readings. Declining US yields and weakening US Dollar Index are positive for the metal. Geopolitical concerns also support the yellow metal as traders brace for a possible retaliation by Iran in the wake of killings of Hamas Chief and Hezbollah commander.

Bloomberg reported that Defense Secretary Lloyd Austin ordered a carrier strike group, including F-35 warplanes and a guided-missile submarine to the Middle East as Israel-Iran conflict may escalate. The metal eyes $2500 in near-term. The metal rally may gather pace if it is able to close above $2500.

As August 15 is an MCX holiday, Indian traders are advised to exercise proper caution as US retail sales and weekly jobless claims data will be released on August 15. 

A possible weakness in outside markets is a potential risk to the metal buyers. Support is at $2450 (MCX October contract Rs 70,200) /$2432 (Rs 69,700) /$2418 (Rs 69,200). Resistance is at $2478 I(Rs 71,000) /$2484 (Rs 71,200)/$2500 (Rs 71,600).

(Disclaimer:Praveen Singh is Associate Vice President of Fundamental Currencies and Commodities at Sharekhan by BNP Paribas. Views expressed are his own.)