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Performance

Commodities continued to be under pressure for the second day in a row on hawkish Federal Reserve. Adding to the downside pressure has been the UK's April inflation data, released on Wednesday, that came in hotter than expected.

FOMC minutes of the May meeting, released on May 22, showed that many policy committee members called for a higher for longer rate regime, and some of them even questioned whether the rates are restrictive enough. The members were highly vigilant on inflation risks. Hawkish FOMC minutes have dimmed the rate cut prospects, which is weighing on commodities.

The downside pressure on gold further intensified on Thursday on better-than-expected S&P US Global manufacturing and services PMI data.

 

Spot gold was changing hands at $2,332 when the MCX closed and was down around 2 per cent on the day. It fell for the third consecutive day. MCX June contract, at Rs 71,510 (LTP) was down 2.10 per cent.

Data round up

S&P Global US manufacturing PMI (May preliminary) came in at 50.90 Vs the forecast of 49.90, while services PMI was noted at 54.80 as against the forecast of 51.20; thus, composite PMI at 54.40 was way above the forecast of 51.20 as it hit the highest level since April 2022. 

Both input and output prices rose at faster rates as manufacturers witnessed the steepest cost increase in a year. New home sales (April) trailed the forecast, whereas initial jobless claims (May 18) at 215K were better than the expected data of 220K.

Earlier in the day, PMIs out of Europe were released. The UK's and the Euro-zone's PMIs data were mixed.

ETF Holdings

Total known global gold ETF holdings, after rising for five straight days, fell on May 22 to 81.453 MOz, though remained above the last week's level.

Dollar and yields

The ten-year US yields firmed up and at 4.483 per cent were up 1.38 per cent at the time of MCX closing. The US Dollar Index at 105.07 was up nearly 0.15 per cent as it extended its winning streak to the fourth day.

Upcoming data
 

The major US data to be released Friday include durable goods orders (April preliminary), University of Michigan sentiment and short- and long-term inflation expectations (May final).

Outlook

Gold is looking somewhat oversold currently as the FOMC minutes were for the policy meeting concluded on May 1. Most of the US data, viz nonfarm payroll, ISM services, retail sales, etc., released after that meeting have been disappointing.

The Fed Chair Powell in his latest speech expressed confidence in inflation trending lower towards the Fed’s 2 per cent target. Rate hike has been ruled out by almost every Fed official as most of them have called for waiting further to ensure more confidence on inflation before cutting rates. 

S&P Global US PMIs have come in as much better than forecast. However, ISM PMIs paint a different picture as ISM services (April) fell into contraction zone. In such a scenario, the downside from the current level may be limited. Support is at $2,308/$2,300 (Rs 70,500-Rs 70,700). Resistance is at $2,350/$2,380 (Rs 72,000/Rs 72,900). 

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