 "Gold Strategy: Yellow metal uncertain before Fed outcome; support at ,277 | News on Markets")
Spot gold traded with a bearish bias on Tuesday as most of the commodities were under pressure due to the rise of far-right parties in the recently concluded European elections
Praveen Singh Mumbai
Performance
Spot gold traded with a bearish bias on Tuesday as most of the commodities were under pressure due to the rise of far-right parties in the recently concluded European elections. Risk appetite was poor. Spot gold once again fell below $2300 in the Asian session before recovering in the US session; silver was hit harder than gold.
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The metal got some support from softer US yields, though European bonds faced a sell-off on political concerns due to projected victory of far-right parties in exit polls. Usually, the US bonds are well bid in the run up to the FOMC decision; investors seeking refuge amid the European political concerns may also have boosted the US bonds.
As such, gold has been under pressure since Friday as China’s central bank hit the pause button in its 18-month long gold buying spree. China’s Central Bank bought 225 tons in 2023. Encouraging US nonfarm payroll report (May), which was released Friday, and ISM services data are also exerting a downside pressure on the yellow metal as multiple rate cut possibility is diminishing.
Spot gold was changing hands at $2313, a gain of 0.10 per cent, when the MCX closed. The MCX August gold contract was at Rs 71,505 (LTP), up 0.09 per cent.
Dollar and yields
European bonds fell on political concerns as after three days of voting in the European Union’s 27 member states, exit polls showed that far-right parties were set to win around 150 of the parliament’s 720 seats. However, the US bonds were up. The ten-year US yields at 4.405 per cent were up 1.48 per cent, while the US Dollar Index at 105.26 was up 0.11 per cent.
Data roundup
UK job report (April) was disappointing as the United Kingdom’s ILO Unemployment rate rose to 4.4 per cent in the three months to April from 4.3 per cent in the previous period. The unemployment rate was worse than the forecast of 4.3 per cent. In addition, the number of people claiming jobless benefits rose by 50.4K in May, was way above the expected rise of 10.2K claims.
Upcoming data
US CPI data (May), to be released on Wednesday will be crucial for the metal. Apart from the said data, traders will closely monitor the Fed’s monetary policy decision to be declared on Wednesday only as they look for clues to the possible rate cut. It is to be noted that a better-than-expected US nonfarm payroll (May) and ISM services (May) reports have delayed the expected rate cut timing from July to September.
ETF holdings
In a positive development for the yellow metal, total known global gold ETF holdings rose for the seventh consecutive day on June 10, which took the tally to 81.116 Moz, the highest level since April 26.
Outlook
Traders look forward to crucial US CPI data to be released today. Many US Federal Reserve members have noted a lack of progress on inflation front as contrary to the expectations. inflation has turned out to be sticky this year. The last mile is proving to be challenging as inflation reading continues to be well above the Fed’s goal of 2 per cent. Forecasts are not assuring either. Sticky data will weigh on the metal.
FOMC will come out with its monetary policy decision tonight. Hawkish outcome will be bearish for the metal. In that case, gold can fall further to test the support at $2,277, a breach of which will lead to accelerated losses. Resistance is at $2,340/$2,350/$2,365.
(Praveen Singh is associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.)
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