Spot gold closed with a weekly gain of around 2.30% at $1980.87. Gold closed with a loss of $2 Friday on a slight rebound in the two-year US yields that came on somewhat better-than-expected housing starts data. US housing starts (October) came in at 1372K Vs the forecast of 1350K, while building permits were recorded at 1487K Vs the forecast of 1450k, though both the prior data were revised lower.
Gains in gold have come on the notion that the Federal Reserve is done with hiking interest rates as the recently released CPI inflation data lagged the forecast, while jobless claims jumped to the highest level in the last two years. Earlier, ISM services and manufacturing data, and nonfarm payroll data trailed the forecast, too.
Swap traders are pricing in at least one rate cut by March next year as market participants see the US Federal Reserve cutting rates by 100 bps next year.
The ten-year US yields closed with a weekly loss of nearly 4.60% at 4.4370% as the major support at 4.38%, the previous resistance level, is being probed. The two-year yields closed 17 bps down at 4.89%. The US Dollar Index was down roughly 2% to 103.82 on the week as lower yields and risk-on sentiments weighed on the index.
As per an estimate given by Bloomberg, the spot price is nearly 29% below the January 1980 peak, which if adjusted for CPI will be $2817, though, presently, the metal is commanding a hefty geopolitical risk premium.
The Israel-Hamas war rages on as Israel has claimed that now it has a control over above ground Gaza with the legendary tunnels of Palestine being the next military target. Israel has eased fuel delivery restrictions on Gaza.
Central Bank gold purchases are up 14% YTD as the Q3 became the third-highest quarter on record. It is to be noted that 2022 was a record year of gold purchases by central banks; this year may match the quantum bought in 2022. Central Banks buying gold as a strategic allocation and financial risk hedge has offset the selling by Institutional sellers through ETFs.
Total known global gold ETF holdings fell nearly 0.07 troy million ounces to 87 troy million ounces in the week through November 16, which is the lowest level in more than nearly three and a half years.
Major data to be released next week include US existing home sales, FOMC minutes (November 1 meeting), durable goods orders, University of Michigan consumer sentiment and inflation expectations, durable goods orders ( October preliminary) and S&P Global US manufacturing and services PMIs. Major European data in focus will be UK’s services, manufacturing and composite PMIs (November preliminary); the Euro-zone’s consumer confidence along with services, manufacturing, composite PMIs; and Germany’s 3Q final GDP along with services, manufacturing and composite PMIs. China’s Central Bank will decide on its 5-year and one-year loan Prime rates next week. Japan will release its national CPI inflation, Jibuan Bank Japan services, manufacturing and composite PMIs.
Gold faces a strong resistance in the $1995-$2000 zone as the geopolitical risk premium is being eroded on the ongoing Middle East war remaining confined largely between Hamas and Israel. Next major resistance is at $2010. Support is at $1975/$1960.
Gold may need persistent weakness in the major US macroeconomic data to move above $2010.
As traders are shifting their focus away from geopolitical factors to the US data, traders will prefer to buy into the dips as of late, the US data have started showing weakness.
(The author is Associate VP, Fundamental Currencies and Commodities, Sharekhan by BNP Paribas)
