Gold outlook: Buy dips amid rate cut hopes, trade frictions; key levels

Business Standard

2 days ago

Gold faces a strong resistance at $3420 (₹102,300 at INR/USD rate of ₹87.43) as posed by the 4-month-old trendline.
In near-term, gold is well supported on healthy ETF inflows, central banks cutting rate or looking to cut rates even amid high inflation, and tariff frictions.
Praveen Singh Mumbai
Gold: Up as US job data disappoint and US tariffs come into effect
Performance On August 7, the MCX Gold contract hit a fresh-record high of 102,155 as the spot gold prices surged to $3397, the highest level since July 23. Gold rallied as the US tariffs went into effect on Thursday, though not without continuing frictions as Switzerland, EU and Japan expressed willingness to negotiate further, while India called 50 per cent tariff rate as unjustified. A weak US weekly job report and weak auction result of 30-year US treasuries also helped the metal.
At the time of writing this article, the yellow metal was changing hands at $3392, up around 0.6 per cent for the day, as the MCX October Gold contract was noted at ₹101,480.
Fed Watch The Fed Governor Christopher Waller is emerging as a top candidate for the Fed Chair job as Trump Advisors are said to be impressed with Waller's forecasting acumen and his deep knowledge of the Fed System.
Tariff Developments US-China trade truce: The US Commerce Secretary Howard Lutnick said that the Trump Administration will likely extend the tariff truce with China.
Chips tariff The US President declared plans to slap a 100 per cent tariff on semiconductor imports but companies moving their production back to the US will be exempted. Although Trump's declaration will further upend electronics supply chain which is already undergoing a significant shift, risk assets were well bid on the notion that manufacturers will be able to shift their manufacturing basis as some of them have already planned to produce in the US.
US Tariffs become effective: US tariffs have become effective from August 7; the average US tariff rate will rise to 15.2 per cent -- highest since second World War. As per Bloomberg, China accounted for nearly 30 per cent of all US calculated tariffs in June.
Data and event roundup
The US data released Thursday showed that nonfarm productivity (2Q Prel.) at 2.4 per cent topped the estimate of 2 per cent as the prior reading was revised lower from -1.5 per cent to -1.8 per cent. Unit labour costs (2Q prel.) at 1.6 per cent was more than the estimate of 1.5 per cent.
Weekly job report was weaker than expected as initial jobless claims came in 226K Vs the estimate of 222K, while continuing claims rose to from 1936K to 1974K—highest since November 2021-- as against the forecast of 1950K.
As widely expected, despite high inflation, Bank of England cut the benchmark rate by 25 bps from 4.25 per cent to 4 per cent in a 5-to-4 decision following a deadlock that forced the MPC into an unprecedented second vote. It is to be noted that UK Tax data suggest 185,000 jobs have been lost since the Labour government announced plans to increase employers' payroll taxes and the minimum wage. The MPC flagged upside risks to consumer prices as the forecast for economic growth in 2025 was also upgraded slightly to 1.25 per cent.
China's trade data- Despite tariffs imposed by President Donald Trump, growth in shipments from China gathered pace in July as suppliers looked for diversification. The total value of exports jumped 7.2 per cent from a year earlier, Vs the forecast of 5.6 per cent growth. Even imports rising by 4.1 per cent y-o-y Vs the forecast of -1 per cent was a solid performance.
Upcoming data and event Next major data on the card is US CPI (July) that will be released on August 12. The data may show inflation gathering pace. China's CPI and PPI data (July) will be released on August 9.
The Kremlin reported that the President Putin and the President Trump plan to meet shortly and details are being finalized. The White House is pushing to include the President Zelenskiy in the meeting, though Russia does not find the conditions to be right to include him.
US Dollar Index and yields At the time of writing this article, the US Dollar Index was hovering near 98.29, up 0.12 per cent on the day, as it rose for the first time after four straight days of losses. The Index is up nearly 1.65 per cent from the cycle-low of 96.37 reached on July 1, which also happens to be the lowest level since February 2022.
Two-year and Ten-year yields were up 2 bps each at 4.24 per cent and 3.73 per cent respectively.
Total known global ETF holdings at 91.69 MOz are near 2-year high level as ETF holdings have risen 10.66 per cent YTD.
China's Central Bank increased its gold reserves for the ninth straight months in July as it bought nearly 2 tons of the metal that took the Bank's holdings to 73.96 MOz.
Fed Watch: Calls for rate cuts grow
Following Neel Kashkari's call to cut rates, now three Fed officials – Mary Daly, Lisa Cook and Kashkari favour rate cuts over labour market concerns.
Gold Outlook
In near-term, gold is well supported on healthy ETF inflows, central banks cutting rate or looking to cut rates even amid high inflation, and tariff frictions.
Traders will closely monitor Russia-US meeting. It is difficult to imagine a convincing and positive outcome on Ukraine war front as Russia remains adamant on keeping the regions it had won under its control while NATO pushes belligerently against Russia.
US-China trade truce extension may lead to some profit booking in gold.
It is advisable to buy dips on rate cut expectations and existing trade frictions which are unlikely to subside anytime soon. Gold faces a strong resistance at $3420 (₹102,300 at INR/USD rate of ₹87.43) as posed by the 4-month-old trendline. Next major level is $3450 (₹103,200). Support is at $3347 (₹100,100)/$3292 (₹98500).