By Jigar Trivedi
Comex Gold is up 9.2% year to date in just four months as it finished April with a small uptick of 1%. April had started with gold at $1,990 an ounce, then gold moved as high as $2,048.40, and yesterday, it closed at $1,989. The bulls failed to make a new record high above $2,075 an ounce. So in other words if we put it, Gold price did all sorts of things this month, but ultimately it ended almost right where it had started the month.
Gold steadied near $1,990 an ounce on Friday and was on track to book a second straight monthly gain, as heightened global economic uncertainties and a weaker dollar lifted demand for the safe-haven asset. Data on Thursday showed that the US economy grew less than expected in the first quarter as business investment growth slowed down, inventories declined and rising interest rates continued to hurt the housing market. Speculations that the US Federal Reserve could soon end its aggressive tightening rate-hike cycle also supported bullion prices. Still, major central banks are expected to tighten policy further, with the Federal Reserve and European Central Bank set to raise interest rates again in May. Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.
The greenback signalled a positive undertone however, registered a second straight monthly drop
The dollar index rose to 102 on Friday and was 0.4% up for the week, as investors expect the Federal Reserve to deliver another 25 basis point interest rate hike in May. The latest data showed compensation costs for civilian workers in the US increased 1.2% in Q1, faster than a 1% rise in Q4 and above expectations. Meanwhile, core PCE inflation rose 0.3% in March as expected. Looking at growth, the US economy expanded less than expected in the first quarter but consumer spending remained resilient.
Eventful week ahead, the yellow metal may drop in the holiday shortened week
This week is set to be extremely busy, with a number of key events scheduled. Also the week is an holiday shortened for India, China and Japan. Investors will closely follow the US labour report, as well as the monetary policy decisions of the Federal Reserve and the European Central Bank.
On the monetary policy front:
The Fed is widely expected to deliver another 25 basis point interest rate hike in May, though analysts remain split on whether the central bank would keep borrowing costs elevated for the remainder of the year or start cutting rates in the second half.
The ECB is seen raising borrowing costs for a seventh time at the May meeting, with most investors betting on a 25bps increase and others projecting a bigger 50bps. ECB’s Schnabel told Politico that a 50bps rate hike was not off the table, while Villeroy de Galhau called for limited increases.
The Japanese yen depreciated past 134.5 per dollar, sliding back toward its weakest levels in seven weeks as the Bank of Japan maintained its ultra-easy monetary policy and made no adjustments to its yield curve control. However, the BOJ said it will remove forward guidance that pledges to keep interest rates at current or low levels. Latest data showed that core consumer prices in Japan’s capital, Tokyo, accelerated and exceeded forecasts in April, keeping the pressure on the central bank to adjust its current monetary settings.
Additionally, the ISM Services and Manufacturing PMI, job openings, and external trade data in the US will be in focus. Also, central banks in Australia, Brazil, Norway will decide on interest rates, while inflation rates will be released for the Euro Area, Italy, the Philippines, Switzerland, South Korea, Indonesia, and the Netherlands. Finally, manufacturing PMIs are expected from China, India, Canada, Italy, South Korea, and Russia.
Outlook for gold prices
The undertone is bullish but we are going into the eventful holiday shortened week and the dollar index is expected to cross 102 mark on the upside hence commodities may come under pressure. MCX Gold June futures has a strong support near Rs. 59,300 – 58,700 per 10 gram. On a flip side, Rs. 60,800 per 10 gram is a resistance. Ahead of central bank meetings and outcomes it becomes little challenging to forecast the trend still we expect the yellow metal to stay bullish nonetheless, for a comfortable entry, a dip in prices is required.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)