Sharekhan decodes strategy to trade gold ahead of US nonfarm payroll data

Gold: Lower as Bitcoin surges

 

Performance:

Spot gold at the time of writing this report is trading at $2,631, down nearly 0.76 per cent on the day. Notwithstanding a weak US ISM services report, the undertone in gold has been sluggish due to traders focusing on Bitcoin as risk appetite continues to be healthy. Even the report of strong gold buying by central banks in October and weaker dollar are of not much help to bulls.

 

Central banks’ buying:

Gold buying by central banks picked up solidly in October as central banks reportedly bought 60 tons of net gold purchases in October, the highest amount recorded in 2024, according to the latest figures from the World Gold Council (WGC).

 

 

India was the leading buyer as it added 27 tons in October, which brought its total gold purchases to 77t YTD, a five-fold increase on its 2023 volume. Turkey and Poland bought 17 tons and 8 tons of gold respectively.

 

Data roundup:

The US data released on December 5, were largely mixed: The US October trade deficit at $73.80 billion was lower than the expected $75 billion deficit. Weekly jobless claims swelled to 2,24,000 -- highest since October 18--from 2,15,000 and were higher than the expected data of 215K, though continuing claims inched lower to 1,871,000 from 1,896,000 -- three-year high.

 

US ISM services (November), released on Wednesday, came in at 52.10 (estimate 55.70) as even ISM employment at 51.50 trailed the forecast of 53. Earlier releases showed that ISM manufacturing (November) came in at 48.40 (forecast 47.50), as ISM new orders 50.40 (forecast 48) and ISM employment at 48.1 (forecast 47) topped their respective forecasts.

 

Upcoming data:

The US nonfarm payroll report for November will be the main attraction of the day. The report is crucial for precious metals. It is to be noted that the October report reflected an alarmingly weak labour market as the US employers added merely 12,000 jobs, the four-year low, though some of the weakness was attributed to hurricanes and layoffs. Apart from the monthly job report, University of Michigan sentiment (December preliminary) and inflation expectations data are also slated to be released.

 

Powell on Bitcoin and gold:

During an onstage interview at the New York Times DealBook Summit in New York on November 4, the Fed Chair Powell said that Bitcoin is not a competitor for the dollar, it's really a competitor for gold. He is cautious on further rate cuts.

 

Bitcoin hits $100,000 level:

The world’s largest cryptocurrency Bitcoin hit the significant level of $100,000 for the first time as the President-elect appointed Paul Atkins, a vocal cryptocurrency advocate, to chair the Securities and Exchange Commission (SEC) on the same day that the cryptocurrency reached its benchmark number.

 

ETF:

Total known global gold ETF holdings fell to 82.903Moz on December 4, the lowest level since November 20.

 

Outlook:

The US nonfarm payroll report will be crucial for the metal. A thoroughly disappointing report is expected to generate buying interest in the metal. It needs to take out stiff resistance at $2,675 (Rs 77,800) (MCX February gold price Rs 76,200) to extend its recovery with $2,700 (Rs 78,600)/$2715 (Rs 79,000) in sight. Support is at $2620 (Rs 76,200)/$2595 (Rs 75,500). 

 

On the other hand, a decent job report with no major fresh developments on the geopolitical front will weigh on gold. It may test the support at $2,595.  (This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan, Views expressed are his own.)