 "gold price")
Spot gold surged on Thursday to two week-high level of $2,366 on the Fed rate cut bets. The rate cut speculation gained currency as the Swiss National Bank cut interest rates for the second time in as many meetings.
Weakness in the US housing starts, weekly job and Philadelphia Fed business outlook data also bolstered the speculation that the Fed will be forced to follow the suit. Spot gold rallied despite firmer US yields and a stronger US Dollar Index.
Spot gold was trading at $2,356, up nearly 1.30 per cent on the day, at the time of the MCX closing. The MCX August contract was at Rs 72,597 (LTP), up 1.21 per cent.
Weakness in the Rupee:
The domestic currency fell to a record low on the strength in the US Dollar Index. Weakness in the Indian Rupee also boosted the gold prices on the MCX. The USDINR pair was trading at Rs 83.65 in the NDF market at the time of the MCX closing.
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Data and event round up:
On Thursday, three major central banks came out with their monetary policies. The Swiss National Bank lowered borrowing costs at a second straight meeting in a somewhat unexpected move. The Central Bank slashed the key rate by 25 bps to 1.25 per cent.
A strong Franc amid low inflation and low inflation forecast prompted the move. The Bank of England kept its rate unchanged at a 16-year high of 5.25 per cent on Thursday with a 7-2 vote of the Monetary Policy Committee (MPC) as 2 members voted for a rate cut. Governor Bailey cited the need to ensure more confidence before a rate cut.
US initial jobless claims came in at 238K, around ten-month high, Vs the forecast of 235K, whereas continuing claims rose to 1828K from 1813K and topped the forecast of 1810K. Housing starts (May) at 1277K trailed the forecast of 1370K, which was the slowest pace in the last four years.
Even building permits (May) at 1386K fell short of the expectation of 1450K. The Philadelphia Fed Business outlook (June) was noted at 1.30, which was also short of the forecast of 5.
Dollar and yields:
The US Dollar Index was at 105.64, up 0.37 per cent on Thursday. The ten-year US yields at 4.25 per cent were up 0.42 per cent.
Fed rate cut probability:
A Fed rate cut probability at the upcoming Fed meeting on September 18 stands at 65 per cent currently.
Fedspeak:
Federal Reserve Bank of Minneapolis President Kashkari said that it could take up to 2 years for the Fed to return to its 2 per cent inflation target and rate outlook depends on the path of the economic.
Swiss gold exports:
Gold shipments from Switzerland, Europe's key refining hub fell to 103.40 tons in April from 123.60 as sales to India (down 43 per cent to 14 tons) and Hong Kong (down 80 per cent to 1.50 tons) dropped sharply. Sales to China were almost steady at 36.20 tons.
Upcoming data:
Today's US data on tap include S&P Global US manufacturing, services, and composite PMIs (June preliminary), Leading Index (May) and existing home sales (May).
Outlook:
Weaker than expected US data and two consecutive rate cuts by the Swiss National Bank are boosting the possibility of a more than one rate cut, which is at odds with the Fed’s own projection of just one rate cut this year. Rise of far-right parties in European elections is also positive for the metal.
Decline in Swiss gold exports and the China’s Central Bank hitting a pause button in buying gold in May do not reflect a convincing strong demand picture in short term; thus, data to data volatility in gold may be quite high. The metal may test resistance at $2,385 (Rs 73,500) in the near-term. The next resistance is seen at $2,400 (Rs 74,000).
In the present scenario, the yellow metal may find it difficult to conquer the $2,400 level, though it may trade with a positive bias in the very short term. Support is seen at $2,343 (Rs 72,200) /$2,318 (Rs 71,400).
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(Praveen Singh is associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.)
