Spot gold closed with a gain of 0.27% at $2338 Friday. However, the metal posted its first weekly decline in six on inflation concerns as the US inflation data remained elevated. The metal fell 2.20% on the weekly closing basis.
The ten-year US yields at 4.67% were around 1% lower Friday; however, yields were up nearly 1% to finish the week higher, whereas the 2-year US yields at 4.99% were up nearly one bps on the week, but down nearly one bps Friday.
The US Dollar Index closed with a gain of nearly half a percent at 106.07 Friday, and was steady on a weekly basis.
Data roundup
The S&P Global Flash April Composite Index (April)) of output at manufacturers and service was noted at 50.90 Vs the forecast of 52. It was the lowest reading since August. The measure of employment slid 3.20 points to 48, the lowest reading in around four years on contraction in services payroll and slower manufacturing growth. S&P Global manufacturing PMI unexpectedly contracted as against the forecast of 52. New home sales data (March) came in at 693K, which topped the forecast of 668K; however, the February data was revised lower.
The US durable goods orders data (March) were mixed as the March data beat the forecast but prior data were revised lower. The US GDP for Q1 2024 was noted at 1.6% QoQ, which was below estimates of 2.5%, and way lower than the Q4 2023’s 3.4%. However, the core Personal Consumption Expenditure Price Index (PCE) surged by 3.7% that topped the estimate of 3.4% and was sharply up from the prior data of 2%. The weekly job report was somewhat better than expected.
The US data released Friday showed that personal income (March) at 0.50% was in line with the forecast, whereas personal spending at 0.80% was better than the expected reading of 0.60%. PCE deflator CPI (march) came in at 0.30% m-o-m (Forecast 0.30) and 2.70% y-o-y Vs the forecast of 2.70%, whereas PCE core deflator m-o-m at 0.30% matched the forecast, but y-o-y reading at 2.80% topped the estimate of 2.70%. Hotter than expected readings have once again shown that the US inflation is proving to be sticky.
Gold demand
Total known global gold ETF holdings fell for the third straight on April 25. which took the total holdings level to 81.157MOz. As per the China’s Gold Association, China’s gold consumption increased 5.94% y-o-y to about 308.90 tons in the first quarter as demand for gold bars and gold coins has significantly increased.
India’s domestic gold prices continue to trade at a discount to international prices on sluggish demand due to high prices, particularly for jewellery.
Major events next week
The most important event next week is the US Fed FOMC whose outcome will be known on May 1. Among other events are the US ADP employment change (April), JOLTs job openings (March), ISM manufacturing (April), unit labour costs (1Q preliminary), factory orders (March), ISM services (April) and nonfarm payroll (April). Out of Europe, focus will be on the UK’s services PMI (April final) and manufacturing PMI; the Euro-zone’s CPI (April), unemployment rate (April), manufacturing and services PMI; and Germany’s CPI (April) and 1Q GDP. China is set to release its manufacturing and services PMI at the end of the month.
Fed stance probability
Markets are now looking for 1 to 2 rate cuts starting November, which is in sharp contrast to the 6-7 weeks seen a few weeks ago. Falling odds of multiple rate cuts may weigh on the metal.
Geopolitics
Although the geopolitical situation remains tense as traders watch out for signs of escalation in the Iran-Israel conflict, it is largely contained, which is negative for the yellow metal. Israel’s decision regarding Rafah remains in focus.
Weekly outlook
Gold is expected to fall further in the next week as the US Federal Reserve is likely to deliver a hawkish pause in its FOMC meeting on May 1.
The US treasury yields are somewhat steady on the notion that the US inflation data were not as hot as feared; however, treasuries are vulnerable as markets rethink about rate cut possibilities this year. The ten-year US yields may rise to 5%. US ISM manufacturing and services data will also be crucial. Unexpected weakness in the US PMIs may support gold.
Support is seen at 2290/$2265/$2250, whereas resistance is at $2350/$2365/$2400.
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)
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