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Gold – tumbles in a broad-based commodity sell-off
Performance: Spot gold crashed to breach the crucial support around $2620 on Tuesday as commodities witnessed across-the-board selling.
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The sell-off in commodities began in the Asian session soon after China’s NDRC’s (National Development and Reform Commission, China’s economic planning agency) announcements that failed to provide details of much-awaited additional fiscal stimulus. As per NDRC’s announcements, the Chinese authorities will bring forward to this year $14 billion in central government from 2025 budget and would add another $14 billion in spending on key strategic areas this year as they would speed up spending while largely retaining plans to boost investment. In addition, the country would continue to issue ultra-long sovereign bonds next year to support project spending.
Investors, closely watching for additional policy measures, were disappointed. Nearly all the metal and energy counters tumbled on questions about Beijing’s resolve to shore up the ailing real estate sector and the struggling economy.
Although China’s conservative fiscal stance may reflect concerns about debt, announcements on more stimulus measures are still expected given the fact that the Chinese economy is caught up in a deflationary spiral and the officials at last month’s Politburo meeting sounded supportive.
Apart from disappointments on China’s stimulus front, impacts of the robust US nonfarm payroll released on Friday continue to reverberate through the markets keeping the US yields elevated as 50-bps rate cut probability has been reduced to zero now.
Contained geopolitical tensions also weighed on the metal as Israel’s retaliation against Iran is awaited.
Spot gold was trading at $2614, down nearly 1.1 per cent on the day. The MCX December contract at Rs 75150 was down 1.18 per cent.
US Dollar and yields:
The US Dollar Index, which just a few days back was on defensive at the crucial support level of 100, has soared. The Index was hovering around 102.57. The ten-year US yields at 4.03 per cent were up by 1-bps, whereas the two-year yields at 3.96 per cent were down nearly 1 per cent.
ETF holdings:
Total known global gold ETF holdings stood at 83.505MOz as of October 7 and were on track of ninth straight weekly gain.
Geopolitical watch:
Battles continue to rage in the Middle East as Israel has expanded its ground operation in Lebanon and Hamas fired rockets on Israel. Hezbollah is said to be backing ceasefire attempts, though Israel has warned that Lebanon faces destruction like ‘Gaza’. Israel’s defence minister will travel to Washington as Israel warned that its retaliation against Iran will be significant.
Outlook:
In absence of any major escalations in geopolitical tensions, gold may continue to trade with a bearish bias. The US CPI data (September) will be out today; however, the US nonfarm payroll report has rendered the inflation data somewhat redundant unless the readings turn out to be uncomfortably higher. US yields are likely to remain firm in the near-term, which would be supportive for the US Dollar.
The yellow metal may test the support band of $2580-$2590 (Rs 74,200-Rs 74,400) in the near-term. Next major support is at $2535 (Rs 73,000). Resistance is at $2625 (Rs 75,500)/$2655 (Rs 76,300).
(Disclaimer: Praveen Singh is associate VP of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.)
First Published: Oct 09 2024 | 9:15 AM IST
