Gold rebounding on renewed concerns over Iran-Israel conflict
Gold performance on Thursday
Weak looking gold dipped further to $2,640 on robust US ISM services data as the 10-year yields pushed up further. However, news of the US discussing with Israel to hit Iranian oil facilities broke out at the same time, which supported the yellow metal to bounce back.
Spot gold was trading at $2,660, up nearly $2 at the time of writing this report. The MCX December Gold contract was at 76,328, down 0.08 per cent.
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US Dollar Index and yields
The US Dollar Index gained on US ADP and ISM services data as the yields rose. The Bank of England’s governor Bailey said that the bank could be a bit more aggressive in cutting rates if inflation remains subdued. The UK Pound tumbled on his comments, which also boosted the US Dollar. The ten-year US yields at 3.83 per cent were up more than 1 per cent. The US Dollar Index a 101.92 was up 0.23 per cent.
Geopolitical watch:
Markets are concerned about Israel’s response to Iran’s attack using ballistic missiles. Iran has said that it is done with its attack. Israel, however, has vowed a strong retaliation to Iran’s attack. The US President said that they were discussing supporting Israel’s attack on Iran’s oil facilities. Iran has vowed to take strong measures in case Israel retaliates, thus, worsening geopolitical situation has pushed up geopolitical premium in gold prices.
Data roundup:
The US ISM services data (September), released on Thursday, came in at 54.90 and beat the forecast of 51.70 by a wide margin. ISM prices paid jumped to 59.40 (forecast 56) from 57.30 in August as ISM services new orders at 59.40 were well above the forecast of 52.50.
Although employment dipped into the contraction territory, overall ISM services report could be considered as a robust one, which has reduced the odds of a 50-bps at the next FOMC meeting. Weekly job report was mixed as weekly claims at 225,000, topped the forecast of 221,000, but continuing claims at 18,26,000 lagged the estimate of 18,30,000.
Factory orders (August) came in at -0.20 per cent, compared to the forecast of 0.20 per cent. Overall, the US data released on Thursday could be considered positive for the US economy and the US Dollar Index.
The US ADP data (September), released on Wednesday, came in at 143,000, better than expected figure of 120,000. It is to be noted that JOLTs Job openings (August), released on Tuesday, had also topped the forecast. The Euro-zone’s services PMI (September final) was revised higher from 50.50 to 51.40 as even composite PMI was better than the initial estimate.
Upcoming data:
Traders will closely scrutinise the US nonfarm payroll report to be released today. The report is important as the Fed is vigilant towards any alarming weakness in the US labour market. Unexpectedly weak report will boost the probability of a 50-bps cut at the next FOMC meeting, which will be positive for the metal. It is being estimated that the nonfarm payroll report may throw an upside surprise.
Fed speak:
Federal Reserve Bank of Richmond President Tom Berkin said that progress has been made on inflation, but the Fed can’t declare a victory on inflation yet. Goolsbee said that they have gotten inflation down.
Central banks’ action:
Global central banks bought net 8 tons of gold in August.
Gold ETF:
Total known global gold ETF holdings stood at 83.376 MOz as of October 2; thus, the holdings were heading towards the fourth consecutive weekly gain.
Outlook:
Gold is expected to be highly volatile on geopolitical worries and crucial nonfarm payroll report. Geopolitical concerns will keep the metal bid; however, fresh catalysts are needed to help the metal breakout of its $2,620-$2,685 range.
Support is at $2,620 (Rs 75,200). Resistance is at $2,685/$2,700 (Rs 77,100/77,500).
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Disclaimer: Praveen Singh is Associate VP, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas. Views expressed are his own.
First Published: Oct 04 2024 | 10:09 AM IST
