Performance
Spot gold traded with a bearish bias on Tuesday as most commodities were under pressure due to the rise of far-right parties in the recently concluded European elections. Risk appetite was poor. Spot gold fell below $2300 in the Asian session before recovering in the US session; silver was hit harder than gold.
The metal received some support from softer US yields, although European bonds faced a sell-off on political concerns resulting from projected victories of far-right parties in exit polls. Typically, US bonds are well bid approaching the FOMC decision; investors seeking refuge amid European political concerns may have also boosted US bonds.
Gold has been under pressure since Friday due to China’s central bank pausing its 18-month long gold buying spree. Additionally, upbeat US nonfarm payroll report (May) and ISM services data released on Friday are putting downward pressure on gold as the possibility of multiple rate cuts diminishes.
Spot gold closed at $2313, up 0.10%, when the MCX closed. The MCX August gold contract was at Rs 71,505 (LTP), up 0.09%.
Dollar and Yields
European bonds dropped on political concerns as exit polls indicated potential victories for far-right parties. However, US bonds strengthened. The ten-year US yields at 4.405% were up 1.48%, while the US Dollar Index at 105.26 climbed by 0.11%.
Data Roundup
The UK job report for April was disappointing, with the ILO Unemployment rate rising to 4.4% from 4.3%. The number of people claiming jobless benefits in May also saw a significant increase, exceeding expectations.
Upcoming Data
US CPI data for May, to be released on Wednesday, will be critical for the metal. Traders are closely watching the Fed’s monetary policy decision for clues on potential rate cuts. A stronger economy could delay the expected rate cut timing.
ETF Holdings
Global gold ETF holdings rose for the seventh straight day on June 10, reaching 81.116 Moz, the highest level since April 26.
Outlook
Traders are awaiting the US CPI data release for further insights. Inflation has been challenging to address this year, with readings consistently above the Fed’s 2% goal. Any hawkish outcomes from the FOMC decision could lead to further declines in gold prices.
Resistance levels are at $2,340/$2,350/$2,365, while the support level is at $2,277. A breach of support may trigger accelerated losses.
(Praveen Singh is associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.)
First Published: Jun 12 2024 | 6:34 AM IST
### Additional Insight:
#### Political Impact on Commodities
The performance of gold and other commodities was significantly influenced by the outcomes of the European elections, where the rise of far-right parties caused uncertainty and affected risk appetite in the market. This political upheaval had a ripple effect on various asset classes, leading to fluctuations in prices.
#### Global Economic Trends
The interplay between US and European bonds, along with the movement of the US Dollar Index, highlighted the interconnectedness of global financial markets. Investors reacted to political concerns by shifting their investments, creating volatility in bond yields and currency values.
#### Market Expectations and Rate Cuts
The impact of economic data releases, such as the US nonfarm payroll report and ISM services data, on gold prices underscored the market’s sensitivity to indicators of economic health. The potential for rate cuts added an additional layer of complexity, influencing investor decisions and market dynamics.
#### Gold ETF Holdings
The sustained increase in global gold ETF holdings signaled continued interest in gold as a safe-haven asset. This accumulation reflected investor sentiment towards diversifying their portfolios and hedging against market uncertainties.
#### Future Outlook and Risk Factors
The anticipation of key economic data releases and the upcoming FOMC decision highlighted the importance of staying informed and adapting to evolving market conditions. Factors like inflation trends and monetary policy decisions will continue to impact gold prices, requiring a vigilant approach to managing risks and opportunities.
