Gold trading strategy: Support seen at Rs 73,000; Resistance at Rs 75,200

Gold - a fresh record high

Performance
 

After consolidating in the $2470-$2530 range for nearly three weeks, spot gold rallied to a fresh record high of $2555 on Thursday. The metal rallied to breach the crucial resistance of previous all-time high at $2532 on a slight pickup in the US jobless claims, prior PPI data getting revised lower and the European Central Bank cutting rates by 25 bps.

Spot gold was trading with a gain of 1.59 per cent at $2551 at the time of writing this article. MCX October gold contract at Rs 72,794 was up 1.21 per cent.

 

Data round up

US Initial jobless claims came in at 230K Vs the forecast of 226K, while the previous data was revised higher by 1k. PPI (August) rose 0.2 per cent M-o-M versus the forecast of 0.1 per cent, core PPI was up 0.3 per cent M-o-M versus the estimate of 0.2 per cent. PPI Y-o-Y data were in line with the estimates. PPI (July) data were revised lower across the board, which boosted the possibility of Fed rate cuts.

Central Bank watch

As expected, the European Central Bank slashed the deposit facility rate by 0.25 per cent to 3.50 per cent as the economy struggles amid inflation trending lower. The bank sees inflation as steady but flagged risks to growth outlook, and said that its future monetary decisions will be data dependent.

As the ECB has already cut rate twice this year, the Fed is expected to follow the suit on weakening job market as highlighted by the Fed governor Waller.

Upcoming data
 

The US data to be released Friday include import and export price indices (August), University of Michigan sentiment (September preliminary) and University of Michigan inflation expectations.

US Dollar and yields
 

The US yields initially dipped on the US data; however, the decline was short lived. The ten-year US yields were seen 3.69 per cent, up over 1 per cent on the day, at the time of the MCX closing, whereas the two-year yields at 3.69 per cent were up around 1.35 per cent.

The US Dollar Index at 101.5 was down 0.10 per cent on the day.

ETF
 

Total known global gold ETF holdings stood at 83.058MOz, the highest level since mid-February, as of September 11.

Outlook
 

Major focus of the market is on the upcoming September 18 FOMC meeting at which the US Fed is expected to start cutting rates. Although the latest CPI and PPI readings do not warrant outsized rate cuts, markets expect the Fed to cut rates by 100+ bps this year as the Central Bank has turned its attention from inflation to employment.

Gold is expected to extend its gains after breaching the stiff resistance at $2550, though caution is needed ahead of the Fed's monetary policy decision.

Support is at $2525 (Rs 73,000)/$2500 (Rs 72,300). Resistance is at $2600 (Rs 75,200).
 

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