Spot gold extended its rate cut hope rally Friday to rise to $2378 before giving back some of the gains to close with a gain of 0.59% at $2360. It slid from the day’s high on hotter-than-expected University of Michigan consumer inflation expectations data, however, it was still up around 2.60% on the week.
The ten-year US yields closed nearly 0.75% up at 4.50% Friday and were flat on the week. The two-year yields were up 0.95% to close at 4.87% as the yields hit a weekly high. The US Dollar Index closed with a gain of 0.10% at 105.32 Friday and was up around 0.30% on the week.
Data and event round up
University of Michigan one year inflation expectations (May preliminary) came in at 3.50% Vs the forecast of 3.2%, while 5–10-year inflation expectations at 3.10% were also above the forecast of 3%. University of Michigan sentiment tumbled to 67.40 from 77.20 in April and was way lower than the forecast of 76.20 as high inflation and elevated rates are taking a toll on US consumers and economy, which stokes stagflation fears.
US weekly jobless surged to the highest level since August. However, it is to be noted that it was a week in which New York schools were closed; thus, applications by school workers could have distorted the data.
The Bank of England, as expected, kept its benchmark rate unchanged at 5.25%; however, markets expect that the Bank will cut rates in June.
Fedspeak: Slightly hawkish tilt
Federal Reserve Governor Michelle Bowman sees no rate cuts this year as inflation remains sticky. Dallas Fed President Lorie Logan said Friday that given the disappointing inflation data, it is too early to think about rate cuts. Minneapolis President Kashakri pondered over the possibility of higher neutral rates. The Atlanta Fed President called for patience and waited until inflation gave a signal that it was headed towards the 2% goal. Boston President Susan Collins noted that it will take more time than previously thought to bring inflation sustainably down to 2%. San Francisco Fed’s Mary Daly said that monetary policy is restrictive, but it might take more time to bring inflation down. Chicago Federal Reserve (Fed) President Goolsbee said the economy has hit an inflation bump, though policy is restrictive.
ETF holdings
Total known global gold ETF holdings fell for the second straight day on May 9 to 80.606 MOz and were lower than the 80.749 MOz ETF holdings level seen at the end of the prior week.
Data next week
Major US data to be released next week include PPI (May), CPI (April), retail sales advance (April), housing starts (April), industrial production (April), and Philadelphia Fed business outlook (May). Major Euro-zone data on tap next week include the Euro-zone’s industrial production (March), and Germany’s CPI (April final) and ZEW Survey expectations (May). The major UK data to be released next is employment data (March). Out of Asia, the focus will be on China’s PPI, CPI (April), industrial production, retail sales (April), and home prices (April) along with Japan’s Q1 GDP and PPI.
China’s gold buying: Slowing down
China’s central bank increased its gold reserves for the 18th straight month in April, however, the pace of buying slowed. In April, the PBOC bought 60,000 troy ounces, which was down from 160,000 ounces in March, and 390,000 ounces in February. China buying gold at a reduced pace is bearish for the metal.
Geopolitical watch
Israel-Hamas ceasefire talks have come to a halt. Israel has stepped up its military operation in Rafah as its attacks involve ground operations. The worsening situation will be positive for gold.
Weekly outlook
Next week, US CPI data will be released, which will be crucial for gold. In case of hotter-than-expected inflation data, gold will fall. The bullion rally has coincided with a rally in risk assets and bonds. Bond yields may surge again on sticky inflation data. Fedspeak has been somewhat hawkish this week. Despite poor macroeconomic data, the Fed may press ahead with a ‘higher for longer’ rate regime. Gold may form a double top around $2431 to sell-off. Support is at $2350/$2335/$2320/$2300. Resistance is at $2380/$2400/$2435. The yellow metal may correct lower next week.
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)