On February 15, spot gold was highly volatile and choppy amid weak US data and traders reassessing the impacts of the US President Trump’s tariff policies. The yellow metal came close to it’s all-time high level of $2943; however, it slumped as traders opted to book profits.
The yellow metal traded between $2854 (February 10) and $2943 (February 11) in the week. It closed with a loss of 1.57% on Friday but managed to eke out a weekly gain of around 0.90% to post a seventh consecutive weekly gain.
Data roundup
US bonds rallied across the yield curve on disappointing US retail sales data. Retail sales fell the most in nearly two-years in January putting consumers spending into question. Retail purchases, not adjusted for inflation, slumped 0.90%, though December data was revised higher to 0.7%. Industrial production data (January) was better-than-expected though regional surveys continue to reflect weakness.The US data released earlier in the week, showed that Core PPI m-o-m and y-o-y at 0.3% and 3.6% were hotter than their respective forecasts of 0.2% and 3.1%. US PPI data (January) were also hotter-than-expected as PPI final demand m-o-m came in at 0.4% (forecast 0.3%) while PPI y-o-y at 3.6% beat the estimate of 3.3%, though some of the PCE components in the PPI were tame that have made traders bring forward their expectations about the next rate cut from December to September.
Reciprocal tariffs
President Trump announced reciprocal tariffs on February 13 on all the concerned nations including even those nations that use VAT/any sort of barrier to US imports. These tariff measures will be non-monetary. The US Commerce Secretary Howard Lutnick will finalize the details of tariffs; reports on new proposed tariffs are to be submitted by April 1.
Trump’s Russia-Ukraine peace initiative
The US President Trump has initiated the Ukraine peace initiative and spoke with his Russian counterpart Putin. Ukraine will also be part of the peace negotiations.
US Dollar Index and US yields
The ten-year US yields were highly volatile throughout the week swinging between. 4.45% and 4.66%. The yields fell 1.2% on Friday to close at 4.48% and were down nearly 3 bps on the week. The 2-year yields at 4.26% were also down nearly 3 bps on the week. The US Dollar Index fell over 1% on the week to close at 106.71.
The Fed Chair Powell’s testimony
In his two-day testimony to Senate Banking and House Financial Services on February 11-12, the Fed chair reiterated his January FOMC stance that there is no rush to cut rates. He said that the US economy is doing well, downside risks to the labour market have diminished, and the Central Bank has made substantial progress toward inflation, though there is still more work to do. In addition, he said that he believes that economies function best without trade barriers on their trading partners.
Upcoming data
Major data and events on the cards next week include
US – FOMC minutes (January 29), S&P Global US manufacturing and services PMIs (February preliminary), University of Michigan sentiment and inflation expectations (February final) Housing starts (January)
Europe: Services and manufacturing PMIs (February preliminary).
Asia: China – New home prices (January) 1-year and 5-year Loan Prime Rate decisions by PBoC and Japan – GDP 4Q Prel. CPI (January).
ETF
Total known global gold ETF holdings stood at 83.728Moz as on February 13 as ETFs have recorded a net inflow of around 0.9MOz this year so far.
COMEX gold inventory
The COMEX gold inventory stood at 36.454MOz as on February 12 as the gold stock at COMEX has more than doubled since the US Presidential election results in November 2024 on investors seeking to take delivery rather than going for cash settlement.
Outlook
President Trump’s Ukraine peace initiative and reciprocal tariffs turning out to be less severe than feared are negative developments for the metal. At the same time, disappointing US ISM services (January), mixed job report (after the BLS revising the total number of 2024 jobs down by 586K jobs) and weak-than-expected US retail sales (January) are supportive for the metal. The Dollar Index is likely to be under pressure on the proposed Ukraine peace talks, which may also support the metal. Hot inflation data may have mixed implications for the metal. Overall, on the balance, gold is well placed to extend its ongoing rally on macroeconomic and political uncertainties. However, buying the dips is preferred over chasing this rally as Trump’s mild tariff stance is a big negative factor for the metal. Support is at $2858/$2830/$2790. Resistance is at $2900/$2945/$3000.
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)