Important Data Expected To Bring Volatility

After a record-breaking rally last year, gold has lost momentum amid optimism over economies reopening and vaccine rollouts, with the advancing dollar and rising bond yields denting demand for bullion.

 

Rising bond yields and upbeat risk appetite is denting the safe-haven metal. Gold fell more than 1% on Thursday as U.S. Treasury yields gained on upbeat U.S. economic data. Benchmark 10-year note yields rose to more than a two-week high during the session on U.S. President Joe Biden's proposal of trillions of dollars in new spending and data showing U.S. economic growth accelerated in the first quarter. Higher yields increase the opportunity cost for holding non-yielding bullion. 

The move higher in yields (and a corresponding strengthening of the US Dollar) brought pressure to the gold chart, and precious metals’ spot prices fell steadily throughout Tuesday’s session and into the Asian and European sessions. The pattern repeated in the morning hours of Thursday’s session, thanks to another boost to (possible) inflation expectations when the first pass at calculating growth in the US economy for Q1 of 2021 returned a very strong year-over-year increase (as expected) and the 4-week average of new jobless claims continued to fall towards 600K. After rebounding from Thursday morning’s steep losses, gold stabilized and looked strong on Friday, consolidating near $1770/oz. 

 

In the days to come, markets will be flooded with key economic numbers coming in from the US and a lot of volatility is expected owing to these numbers. All eyes will be on the slate of what looks to be very strong macroeconomic data, including manufacturing and employment reports.

• the ISM manufacturing
• Payroll numbers are quite important. 
• factory orders
• ADP nonfarm employment
• ISM non-manufacturing PMI
• jobless claims

Key U.S. data will be running hot, and gold will be closely following the market's inflation expectations as commodities continue to surge. Generally speaking, any surprise to the upside will get inflation expectations higher. That could drive real rates lower, which would be a good catalyst for gold and gold coins from RSBL.

On the other hand, we are seeing a rise in gold and RSBL coins appetite from the world’s 2 biggest consumers of gold- India and China. In India, prices are down more than 15% from a record high in August, according to the largest bullion dealers in India. Purchases in the world’s second-biggest consumer jumped 37% in the January to March period to 140 tons after slumping to the lowest in more than two decades last year, according to the World Gold Council. A combination of softening gold prices, a sharp pick-up in economic activity and the return of social activities such as weddings supported higher consumption, it said

 

China too saw a steep rise in demand for the yellow metal. The release of a spike in demand has become a feature of the gold market with first-quarter sales of jewellery to Chinese women at their highest since 2015. China’s gold jewellery consumption in the first quarter stood at 119.1 tons, the highest quarterly level in seven years, according to the World Gold Council’s latest survey released on Thursday.

 

The three main reasons behind this rising demand for jewellery were- 

• The improving economic conditions
• A slightly lower gold price and 
• A sales spree related to holidays

While on one side we see the supply-demand equation, on the other side there is inflation and important US data. For now, the gold market is ignoring its perfect storm of low-interest rates, more government spending, and rising inflation expectations. However, next week could test the Federal Reserve's policy stance that it is too early to start tapering.

Before gold can move above $1,800 constantly, the market will need to be certain that the U.S. will see persistent inflation, not just momentary. Plus, other parts of the world should begin to recover according to the RiddiSiddhi Bullions.

Analysts are warning investors that if gold can't go up in this current environment, then look for lower prices. However, many analysts say that a retest of recent support could attract new buying momentum to the marketplace.

Crucial Week for Gold

Gold prices held steady on Monday morning as markets, in general, seem to be in an optimistic holding pattern ahead of another big week of earnings reports, this time accompanied by some key macroeconomic inputs. Gold picked up roughly $5/oz after the global markets reopened on Sunday evening, and stabilised during Monday's trading sessions.

Gold prices have been supported by the recent demand from India (according to the bullion dealers in India) and China, regardless of how weak the U.S. dollar and the retreating Treasury yield is.

The Chinese demand for gold and gold RSBL coins at current levels is no doubt helping support prices, with the PBOC stepping up quotas for gold imports. The local premium above spot still remains at around $7 to $9 an ounce, which could be impacting local availability of gold and gold RSBL coins in Australia, as much of what is produced today may well be heading into that market. Since February 2020 the country has averaged around $600 million a month worth of imports, or circa 10 tonnes, so the new 150 tonnes green light is a significant volume of gold to hit the hungry Chinese market in the months to come.

India’s demand for gold and gold RSBL coins also remains very strong at the current price with record-breaking imports in March of 160 tonnes. Gold shipments from Switzerland to India and China rose last month, indicating renewed buying by the top consumers after a year on the sidelines.

The second wave has been pushing economies back to sluggish growth and stricter lockdowns. Any hindrance in growth will lead to a weaker US dollar and stronger yellow metal. The bullion is stabilizing near an eight-week high as bond yields trend lower, lifting the appeal of the non-interest bearing precious metal.

Increasing covid-19 cases in some parts of the world have raised concerns over the pace of global growth, although stimulus measures remain in place. If the economic situation worsens again, the Fed might be forced to pump more money into the system, altering the hawkish outlook. In that case, gold and gold RSBL coins would most likely breach the current record highs above 2,000 USD.

However, there are bearish sentiments also that prevail in the market over the following - 

• The view that any spike in inflation is likely to be transitory and that the Fed will keep interest rates lower for a longer period extended some support to the dollar-denominated commodity and helped limit any deeper losses, rather assisted to regain some positive traction on the first day of a new trading week. That said, the upside is likely to remain capped as investors might prefer to wait on the sidelines ahead of the latest FOMC monetary policy update, scheduled to be announced on Wednesday.
• All the money printing and inflation are probably priced in, as evident from gold’s rise from 1,400 to 2,000 USD, with investors now being forward-looking and gold dealers in India waiting on that. They see one more year of ultra-loose monetary policy, and then the Fed will need to start hiking rates and taper the QE. Both hawkish actions could come even sooner than 2022.

Should this outlook stay in place, the upside for gold is probably limited.

Moving on to this week, it is going to be an important week for gold with key data to be watched over the coming days -

1. FOMC Meet - The main economic event of the week will be the Federal Reserve’s Open Market Committee (FOMC) meeting that will commence on Tuesday morning and will end on Wednesday afternoon with a statement and press conference from Fed Chair Powell. While there is no expected change in the U.S. monetary policy, the marketplace will closely scrutinize the Fed’s inflation outlook and any comments on the future path of monetary policy. Wednesday’s FOMC meeting and press conference will be followed by a first read on Q1 economic growth on Thursday morning and then the Fed’s report on consumer price inflation.
2. Capital gain taxes - President Biden will address a joint session of Congress where he is expected to lay out the Administration’s plan for an increase to capital gains taxes for the wealthiest Americans. We’ll be watching to see if the formal announcement will stumble the markets similar to what happened last week.

Important data to watch out for-

• EDT/GDP Growth
• Initial jobless claims
• PCE Price Index

With such a crucial week ahead, investors will all be glued to all the important numbers coming in. And on the other hand, the top gold dealers in India and largest bullion dealers in India will wait for investors to make their decisions and pounce on them. Wait and watch is all that we can say.