Wider markets were weaker as brent crude oil tumbled below $70 on demand concerns amid a possibility of a surplus. 

Data roundup

China’s trade data released Tuesday showed that while Chinese exports in August rose 8.7 per cent Y-o-Y (forecast 6.60 per cent), imports were up merely 0.50 per cent Y-o-Y Vs the forecast of 2.50 per cent. China’s core CPI inflation, released on September 9, moderated to the slowest pace in more than three years in August, while PPI slid 1.80 per cent Y-o-Y Vs the estimate of -1.50 per cent. The PPI data continued to remain mired in deflation for the twenty second straight month in August.

UK’s July employment data were mixed as average weekly earnings three-month/Y-o-Y came in 4 per cent; thus, falling short of the forecast of 4.10 per cent. Although three-month employment change at 265K jobs topped the forecast of 123K, payrolled employees’ monthly change was noted at -59K Vs the forecast of +25K.

US yields and the Dollar Index

The ten-year US yields fell to 3.642 per cent, a fresh cycle low; the two-year yields at 3.592 per cent also hit a fresh low. The US yield curve has become un-inverted now as the Fed is set to slash benchmark rates amid weakening job market.

The US Dollar Index, notwithstanding sharp decline in yields, was up 0.10 per cent to trade at 101.65.

Upcoming data

Market participants look forward to the crucial US CPI (August) data to be released tomorrow to gauge the pace of possible rate cuts by the Fed. The CPI Y-o-Y data is expected to show a sharp decline to 2.5 per cent from 2.9 per cent in July.

Gold ETF holdings

Total known global ETF holdings, as of September 9, stood at 83.036Moz, the highest level since mid-February as inflows remain healthy ahead of the beginning of the Fed rate cuts.

Central Bank watch

China’s central bank refrained from gold buying for the fourth consecutive month in August; however, positive ETF inflows have mitigated its negative impact to some extent as ETFs inflows were positive for the fourth straight month in August.

Russia’s gold reserves rose to a record high of $188 billion as the bank is likely to have bought around 4.70 tons of gold in July.

Outlook

Concerns about the Chinese economy, as evident in sharply falling Chinese bonds yields, deepening deflationary concerns and weak domestic demand, are positive for the metal. At the same time, weakness in the US job market, as reflected in the US JOLTs and nonfarm payroll data, and disinflationary trend are leading to increased probability of multiple rate cuts this year. The US Fed Governor Waller has called for big rate cuts if appropriate as he said that the August job report warrants action.

ETF flows turning positive is also positive for the metal as central banks continue to remain net buyers. Barring any upside surprises in the US CPI data, the metal is expected to trade with a positive bias. Buying the dips is the preferred strategy, though gold is somewhat a crowded trade now, caution is must. 

The yellow metal faces resistance at $2532 (all-time high)/$2550. Support is at $2500/$2470/$2446. A decisive breach of $2550 level will open the way to $2700 level. 

(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: Sep 11 2024 | 7:04 AM IST