 "Gold")
Gold: Slightly down ahead of the US CPI data
Performance:
Spot gold hit a fresh record high of $2,942 in the Asian session on February 11 before correcting lower.
The metal was trading at $2,906, down nearly 0.40 per cent on the day, whereas the MCX April gold contract was changing hands at Rs 85,540, down nearly 0.32 per cent on the day. Spot gold traded between $2,881 and $2,943.
The Federal Chair Powell’s testimony:
Also Read
Federal Reserve Chair Powell, in his testimony to Senate Banking Committee on February 11, said that the Bank is in no rush to cut rates as the US economy remains strong and the job market is broadly balanced with no significant wage-related inflationary pressure as concerns about labour market have diminished since significantly since mid-2024.
He added that the policy is significantly less than it had been earlier and the neutral interest rate has moved up significantly since the low pandemic level. He mainly reiterated what he said at the last FOMC meeting concluded in January.
Upcoming data:
Today, the crucial US consumer price index (CPI) report (January) will be released. CPI year-on-year (Y-o-Y) is expected to rise by 2.9 per cent, same as in December, whereas core CPI Y-o-Y is likely to rise by 3.1 per cent, slightly down from 3.2 per cent increase noted in December.
Upcoming event:
The Fed Chair Powell will testify to House Financial Services on February 12.
US dollar and yields:
The ten-year US yields at 4.54 per cent were up by nearly 1 per cent and marked day's low at 4.50 per cent. The two-year US yields at 4.29 per cent were up by 2 basis points (bps). The US dollar index at 108.04 was down by around 0.25 per cent.
Tariff developments:
US President Trump has set a 25 per cent tariff on steel and aluminium imports, valued at $50 billion in 2024, which will affect imports from Canada and Mexico as well. The new rates will take effect on March 12.
The European Commission President Ursula von der Leyen said that the EU will take firm and proportionate counter measures. Trump said that reciprocal tariffs could be announced in two days.
ETF:
Total known global gold ETF holdings rose to 83.714MOz, the highest since November 6, on February 10. Global holdings have risen for six of the past seven weeks.
China raises gold contract margin and allows insurers to invest in gold:
Shanghai gold is raising margin requirements for some gold contracts to 11 per cent from 10 per cent as it is also widening the daily trading limit from 9 per cent to 10 per cent. It is to be noted that China, as per a pilot program, has allowed 10 insurance firms to invest up to 1 per cent of their assets in gold. This policy change will free up $27 billion from insurers to buy gold.
Gold lease rate:
The Gold lease rate, the charge that holders of bullion in London, get on loaning their metal on a short-term basis topped 5 per cent last week as premium for gold futures over the spot rate is rising due to traders shifting gold from Europe to the US in their bid to avoid potential tariffs.
Outlook:
The US Federal is likely to maintain its ‘wait and watch’ stance as it does not feel any urgency to move the needle on rates anytime soon. Inflation could be a hindering factor in cutting rates in the near future.
The five-year breakeven rate which tracks the yield differences between treasuries and inflation-linked bonds, rose higher than the 30-year gauge, marking the biggest difference between the two since 2023. It indicates a possibility of an inflationary impact of tariffs in the near-term.
Gold is being boosted by COMEX gold prices rising faster than LBMA prices on tariff concerns. Futures trading at an increasingly higher premium over spot prices is leading to a flow of metal from Europe to the US on delivery requirements in the US. Traders are also concerned with the political and economic fallout of Trump’s tariff and political policies.
Gold is likely to continue to trade with a positive bias but a correction is not ruled out ahead of the US CPI data. Buying the dips is a preferable strategy than chasing the rally. Support is at $2,880 (Rs 84,700)/$2,850 (Rs 83,800)/$2,830 (Rs 83,300). Resistance is at $2,945 (Rs 86,700)/$3000 (Rs 88,300). This article is authored by Praveen Singh – associate VP, fundamental currencies and commodities, Mirae Asset Sharekhan. Views expressed are his own.
