Gold Performance
Spot gold surged sharply higher on July 11, regaining the $2,400 mark for the first time since May 22, as traders’ optimism on the Fed Fund rate cut grew on the US CPI data (June) falling short of forecast across the board.
The metal hit its day’s high at $2,424.60 and was trading with a gain of 1.78 per cent at $2,414 at the time of the MCX closing. The MCX August gold contract at Rs 73,310 (LTP) was up 0.88 per cent on the day.
Data and event roundup
Much-awaited US CPI data (June) trailed the forecasts on all counts as rents moderated: CPI M-o-M was noted at -0.10 per cent (forecast 0.10 per cent), CPI, ex-food and energy, M-o-M at 0.10 per cent vs the forecast of 0.20 per cent. CPI Y-o-Y at 3 per cent as against the forecast of 3.10 per cent, and CPI, ex-food and energy, Y-o-Y came in 3.30 per cent vs the forecast of 3.40 per cent.
The US CPI data has boosted the rate cut notion. September rate cut probability has risen to 93 per cent from 73 per cent seen a day before the CPI data release. The probability of two rate cuts by the end of the year stands at nearly 70 per cent now as traders look for a collective rate cut of up to 60 bps in 2024.
Fed Chair Powell has already indicated the Fed’s inclination to cut rates in his two-day testimony this week. In his testimony to the House financial services on Wednesday, he said that the Fed will not wait for the US inflation to hit 2 per cent to cut rates, though the Central Bank wants to ensure that the inflation will hit the Fed’s target of 2 per cent before they begin slashing rates.
He acknowledged the risks to the economy, which is not overheated anymore, should the Fed cut the rate too soon or too late.
The US Dollar Index and the US Yields
The US Dollar Index weakened as traders price in the Fed rate cut. The Index was at 104.51, down 0.44 per cent at the time of the MCX closing. The US bonds rallied for the same reason. Consequently, the ten-year US yields at 4.19 per cent were down more than 2 per cent on the day at the time of the MCX closing, while the two-year yields, more sensitive to the monetary policy, were down nearly 2.68 per cent.
Gold ETFs
Total known global gold ETF holdings stood at 81.474Moz as of July 10. The ETF inflows have improved of late as the World Gold Council reported that June was the second month following May this year when the ETFs recorded a net inflow, though, overall, the ETFs have registered a net outflow of 120 tons this year so far, which makes the H1 2024 the worst first half since 2013.
Upcoming data
Today’s major US data include PPI (June) and the University of Michigan consumer sentiments (June) and inflation expectations. Traders will pay attention to the Fed Chair Powell’s speech on Monday, too.
Gold Outlook:
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Disclaimer: Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own
First Published: Jul 12 2024 | 10:05 AM IST
