Informist Poll

Gold seen in broad range in August; focus on US data

Informist, Thursday, Aug 3, 2023

By Sandeep Sinha

MUMBAI – Gold is likely to trade in a broad-range with a positive bias this month, as expectations of end of US Federal Reserve rate hike cycle and increased risk aversion may support safe-haven demand. The positive sentiment for the bullion is supported by rise in imports by top consumer China and continued gold buying by the People’s Bank of China.

The downside to the yellow metal's price was cushioned by downgrade of the US sovereign rating by Fitch Ratings. The global rating firm on Wednesday downgraded the US’ long-term foreign-currency issuer default rating to 'AA+' from 'AAA'. The rating downgrade of the world’s largest economy will lead investors to park money in relatively safer assets like bullion.

On the Multi Commodity Exchange of India, gold futures are seen at 58,432.66-60,593.33 rupees per 10 gm this month, according to the average of the estimates of 15 brokerage firms polled by Informist. On COMEX, prices are seen at $1,920.85-$2,010.71 an ounce.

The most-active October gold contract on MCX was last at 59,111 rupees per 10 gm and the December-month contract on COMEX was at $1,973.85 an ounce.

In July, the price of gold rose 4.1% on month on COMEX and 2.3% on the MCX on rising expectation of a pause in rate hike cycle by major central banks globally. So far this year, the price is up 10% on COMEX and 8.3% on the domestic exchange.

"A growing divergence between gold futures and the spot price shows that traders generally anticipate the Fed to end its cycle of rate increases by the end of the year, which is anticipated to trigger significant inflows into the yellow metal," said Prithviraj Kothari, managing director and chief executive officer at RiddiSiddhi Bullions.

According to the CME FedWatch tool, markets are pricing in an 82.5% chance of the US Federal Reserve keeping interest rates unchanged at 5.25-5.50% at its meeting in September.

"The second half of the year is predicted to see a slowdown in growth, which will increase demand for safe-haven assets like gold even though US economic conditions have so far remained resilient despite rising interest rates," Kothari said.

The People’s Bank of China bought 16 tn of gold in May, seventh successive month of purchases. The Chinese central bank gold reserves now stand at 2,092 tn.

"The hopes of a 'soft landing' of the US economy, which were recently fuelled by robust US data, are currently keeping a lid on the gold price. This is because the US Federal Reserve will presumably only cut its interest rates more noticeably in the foreseeable future – which would benefit gold – in the event of a recession," Thu Lan Nguyen, head of commodity research at Commerzbank said in a research note.

"In the short term we rather expect the gold price to trend sideways around the $1,950 per troy ounce mark," Nguyen said.

Traders cut their net long futures and options positions on COMEX to 116,291 contracts as of Jul 29, according to latest data from Commodity Futures Trading Commission.

In June, India's gold imports climbed nearly 70% on year to 89.41 tn, according to data from the Directorate General of Commercial Intelligence and Statistics. The rise was largely due to restocking by jewellers ahead of the festive season.

Gold holdings with SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by 8.97 tn to 912.93 tn in July, as investors switched to riskier assets such as equity on better performance.

The dollar index, which measures the strength of the greenback against a basket of major currencies, recovered over 3% to 102.50 on Aug 2 from the lows of 99.46 touched on Jul 13. A firm dollar makes precious metals priced in the greenback expensive for holders of other currencies.

"Investors will be continuing to closely monitor US economic data to gauge Fed’s future policy decisions. There is a lot of ambiguity in the market, around interest hike, inflation and growth, hence until there is further clarity regarding these topics, market participants could be a bit cautious regarding safe haven assets," said Manav Modi, analyst at Motilal Oswal Financial Services.

The latest Automatic Data Processing national employment report showed that the US added 324,000 jobs in July surpassing market expectations of 189,000 job addition. The higher-than-expected number may allow Federal Reserve to maintain its tight policy for a longer period and keep gold prices in check.

"In July, USD-INR pair was also quite stable, providing less triggers to the metal on domestic front. Mixed economic numbers are also in the limelight, keeping market participants on the edge and triggering volatility in the metals segment," Modi added.

Investors will take cues from the interest rate decisions by the Bank of England later today, US non-farm payrolls, consumer price index, China consumer price index data, and Germany’s Institute for Economic Research Business Climate Index. They will also keep a close tab on comments from Federal Reserve officials for any cues.

Following is a summary of the poll by Informist on gold prices in August and details of estimates by respondents, in alphabetical order:

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