Spot gold closed with a weekly loss of around 1.40% at $1913.88 on buoyant yields and a firmer dollar as traders became concerned about the possibility of a return of inflation in the US amid a still resilient economy.
Gold’s weekly high in the week ending August 11 was $1946.81, while the weekly low was noted at $1911.73.
The much-awaited US July CPI inflation report showed that US Core CPI posted the smallest back-to-back rise in two years. Core CPI inflation rose 0.20% m-o-m for a second month. Headline CPI inflation also rose 0.20% m-o-m.
Annual headline CPI inflation rose 3.20% y-o-y (June reading 3.30%) as against the median estimate of 3.30%, while core CPI inflation was up 4.70% y-o-y, which matched the forecast, and edged lower from June reading of 4.80%.
The inflation edged lower in July as used car prices fell 1.30% m-o-m, airfares dipped 8.1%, and medical care was down 0.20%. Supercore services data, which is closely watched by the Federal Reserve, fell 0.20% m-o-m but re-accelerated from 4% in June to 4.10% in July on a y-o-y basis mostly on base effects (July 2022 reading stood at 5.10%).
Housing components and rent are likely to decline further in the coming months. Friday’s US inflation data were mixed as PPI data (July) in general were higher than the survey, whereas University of Michigan consumer inflation expectations data trailed the forecast on both one-year and five-ten-year horizons.
The US treasuries initially rallied on worse-than-expected jobless claims and Inflation data which eased concerns about a possible Fed rate hike in September (current probability 11.50%); however, treasuries eventually fell on the notion that headline inflation will rise again in August due to high crude oil prices, though core may not be impacted much. In addition, Fed’s Mary Daly told that the Fed has more work to do.There were some positive developments for the yellow metal in the week ending August 11. Total known gold ETF holdings rose for the first day on August 10 after thirteen consecutive days of outflows.
China extended its gold buying spree for the ninth straight month in July. China’s central bank’s gold holdings rose by around 23 tons to 2136 tons.
The official sector is expected to continue buying gold this year, albeit at a slower rate as compared to last year. The US credit card debt contracted for the first time since April 2021 as high-interest rates forced consumers to slam break on their credit card spending. Revolving credit shrunk by $600 million in June.
The rating agency Moody’s downgraded ten small and mid-sized US banks as it put other six major banks on its negative watch list. China’s economic woes are to some extent positive for the metal. The US weekly jobless claims jumped by 28k to 248k. Country Garden Holdings Co., China’s former largest developer by sales is facing the scrutiny of its operations and is going through a liquidity crunch.
Its bondholders said they are yet to receive their coupon payments due Monday. Its market value has plummeted 93% to $3.50 billion from its peak of around $50 billion in 2018.
The troubles of the company highlight the severity of the economic woes being faced by China. It is to be noted that China’s real estate sector accounts for nearly 25% of the nation’s GDP.
China’s new Yuan loan growth has slumped to the lowest level since July 2009 as new loans reached 345.90 billion Yuan in July, which fell short of a forecast of 780 billion Yuan by a wide margin.
In a negative development for gold, Turkey plans to impose a quota on imports of unprocessed gold to reduce the negative impact of gold imports on its current account balance.
As per the Turkish Government data, imports of unprocessed gold rose 180% to $19.4 billion in the first seven months of this year on a y-o-y basis.
Yields have become quite volatile, especially the long-term yields. The two-year US yields closed with a weekly gain of around 3% at 4.89%, while the ten-year yields at 4.158% were up by around 2.70% on the week. The week’s range was 23 bps.
The US Dollar Index recorded a weekly gain of nearly 0.80% as it finished the week at 102.85. The US Dollar Index faces strong resistance around the 103.50 mark.
Next week, investors will closely watch US July retail sales (advance), NAHB housing market index, housing starts, industrial production and Philadelphia Fed business outlook data.
FOMC minutes of the July 26 FOMC meeting will also be in focus. Out of Europe, Germany’s and Euro-zone’s ZEW Survey, Euro-zone’s 2Q P GDP and Euro-zone’s CPI inflation will also entertain the traders.
China’s retail sales, industrial production, home prices and PBoC’s monetary policy decisions are also due next week only.
Gold is caught between some positive developments as noted above and rising yields which are supporting the US Dollar.
Further rise in yields and Dollar may take gold down to test the key support at $1890. Resistance is at $1930/$1950.
Gold is expected to trade largely in the $1890-$1950 range. China’s economic troubles may lead to a dip in buying.
(The author is Associate VP, Fundamental Currencies and Commodities, Sharekhan by BNP Paribas)
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