Here's why Gold prices may decline; Support seen at Rs 69,400

Gold outlook by Sharekhan: The MCX Gold futures are expected to trade in the range of Rs 68,200 and Rs 70,700 in near term, analyst Praveen Singh.

Spot gold, after dropping for five straight days, was sharply up on August 8 as the metal rallied in line with the risk assets. Risk sentiments improved on assurance by the Bank of Japan that there won't be any rate hikes amid weak markets in near term. The US Federal Reserve officials downplaying weaker than expected US nonfarm payroll report (July) and encouraging weekly jobless claims also helped the risk assets recover.

Spot gold at the time of the MCX closing was trading at $2423, up 1.56 per cent on the day. The MCX October Gold contract at Rs 69,700 was up 1.07 per cent. 

 

US yields and Dollar Index:

The 10-year US yields at 4 per cent were up around 1.8 per cent on the day as the yields are up nearly 35 bps, i.e. around 10 per cent, from the low made on August 5. Sharp moves in bonds speak volumes about the volatility in the markets.

The US Dollar Index at 103.28 was up around 0.19 per cent on the day. The USDJPY pair is up around 4 per cent from the recent cycle low.  

Data roundup

The weekly US jobless claims in the week ending August 3 fell to 233K from 250K, the fastest pace in a year, though continuing claims in the week ending July 27 rose to 1875K from 1869K, a thirty-three-month high.

Central Bank action:

China refrained from buying for the third consecutive month in July. The People's Bank of China had 72.80 million ounces of gold at the end of July, which is nearly 5 per cent of its forex reserves. It is a negative development for the metal.

ETF and gold supply

Total known global gold ETF holdings stand at 82.736MOz as of August 7, highest since February 22, as the ETFs recorded inflows for the third straight day.

Gold supply may rise 3-3.50 per cent in 2024 after a 4 per cent jump in 2023, which will take the supply to a record of over 5100 tons. Mined supply is expected to rise 2-2.50 per cent aided by new mines.

India’s demand:

As per the World Gold Council, India’s gold demand in 2024 is expected to be around 750 tons, which is comparable to 2023 demand of 761 tons.

Upcoming data:

China will release its July CPI and PPI on July 9. Next week is a data-packed week in which focus will be on US CPI (July), retail sales advance (July), Philadelphia Fed business outlook (August) and industrial production (July). Apart from the US data, investors will keenly monitor China's home prices, retail sales, industrial production and property investment (all July) data, too. The People's Bank of China will also decide its 1-year medium-term lending facility rate, which is likely to be maintained at 2.30 per cent

Outlook:

Gold is recovering in line with the wider markets as risk-on sentiments improve. China's central bank staying out of the market for the third consecutive month is a bearish factor for the metal. Shanghai gold is at a discount of around $20.

Rising US yields could pose a risk to the metal as the latest US 10-year and 30-year bond auctions have been weak.

The metal is expected to trade in the range of $2369 (Rs 68,200) and $2460 (Rs 70,700) in near term. Interim support is seen at $2412 (Rs 69,400) /$2400 (Rs 69,000). Traders are likely to sell into rallies.

Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, Views expressed are personal.