Crucial Week For Gold Ahead

 Last week gold closed above $1900 an ounce for the first time since the start of 2021. This could once again mark the onset of bullish sentiments for the yellow metal. Spot Gold kept firm tone and consolidated under new nearly three-month high ($1912) on Monday, supported by weak dollar while growing inflationary pressures lift gold’s appeal as the metal is used as a hedge against inflation. Moving further, gold and gold coin prices in Mumbai scaled a near five-month high on Tuesday. This rally was driven by -

Weaker Dollar - The dollar index was down 0.2% against its rivals, making gold and gold coins in Mumbai less expensive for other currency holders. The U.S. unit registered its second consecutive monthly loss. Broad US dollar weakness became the main catalysts to help the gold post the biggest run-up in 11 months. The US dollar index (DXY) remained on the back foot as hopes of further stimulus and steady vaccinations in the West, recent in Asia as well, improved risk appetite for the metal.

Stimulus - The other supportive factor for the yellow metal is the monetary policy as it remains firmly stable, refusing to start changing the policy in response to rising inflation, arguing that the latest increase in consumer prices is transitory. Having proposed a $6.0 trillion budget, US President Joe Biden stretched talks over his $1.7 trillion infrastructure spending to June even as tax hikes become the key hurdle for the much-awaited stimulus.

Growing Inflationary Pressures - Last week, data showed U.S. consumer prices surged in April, with a measure of underlying inflation blowing past the Federal Reserve’s 2% target. The constant subdued tone around the US dollar, in retort to Fed’s policy expectations, continued to underpin gold price, as per the gold dealers in India. While investors awaited more U.S. data to gauge the extent of global economic recovery, Federal Reserve officials have repeatedly maintained they expect any rise in inflation to be short-lived, and said monetary stimulus would stay in place for some time.

Rising Demand - China’s factory activity expanded at the fastest pace this year in May as domestic and export demand picked up, though sharp rises in raw material prices and strains in supply chains crimped some companies’ production. Rising demand has resulted in pushing gold prices higher.

The true test for gold will be after the next couple of months of hot inflation reports and if we have some surprising better-than-expected nonfarm-payrolls reports.

Friday’s US Nonfarm Payrolls (NFP) will become important catalyst to watch for gold traders as markets for consolidation in the previous month’s disappointment. Should the headline US jobs figures print upbeat figures, traders may have an additional reason to expect the Fed action during the upcoming Federal Open Market Committee (FOMC), which in turn may underpin the US dollar and drag the gold and gold coin prices in India. But weak Nonfarm payrolls number this Friday may jolt gold prices toward the $1975 level.

Investors eagerly await Friday’s US Nonfarm Payrolls data for fresh hints on the economic recovery, which would likely affect the Fed’s policy outlook and in turn gold price. In the near-term, if gold can breach the $1,922 per ounce mark, it can open the room for further upside potential.

Crypto- Is It A Bubble Trouble

 Gold prices edged higher during Monday’s Asia-Pacific trade, reaching a four-month high of $1,887 before pulling back slightly. Stronger-than-expected US manufacturing and service PMI data released on Friday boosted the inflation outlook and thus bolstered the appeal of precious metals perceived as an inflation-hedge.

Factors that played a key role in influencing gold prices are very much active in these markets. These factors greatly affect Treasury yields and in turn, the treasury yields affect bullish or bearish sentiment in RSBL gold.

Dollar Weakness - Since the end of March, the greenback, seen as a safe-haven trade, has retreated steadily with optimism about the recovery. But lately, that move down seems to have slowed down as traders begin to anticipate higher U.S. interest rates coming when the U.S. Federal Reserve reacts to signs of increasing inflation. Any important data becomes important for the US Treasury yields that recently weighed on the US dollar and helped the RSBL gold buyers. As a result, Monday’s downbeat figures of the US Chicago Fed National Activity Index backed a corrective pullback of gold.

The US rates fell and dragged the greenback lower after Fed policymaker’s statements. The Fed’s conciliatory remarks boosted the Wall Street indices and capped gold’s upside, as markets once again believed the Fed could maintain lower rates for longer. However, amid a lack of notable US economic news and holiday-thinned trading conditions, gold price stuck to its recent trading range between $1870-$1890, keeping bullion dealers of India at bay.

Inflation - Recently the U.S. Labor Department showed that the consumer price index jumped to 4.2% in April. It is up 2.6% from the numbers revealed in March. Gold steadied near the highest level in over four months as investors weighed comments by Federal Reserve officials who sought to soothe concerns about inflation.

Governor Lael Brainard, Atlanta Fed President Raphael Bostic and St. Louis’s James Bullard said they would not be surprised to see bottlenecks and supply shortages push prices up in coming months as the pandemic subsides and the pent-up demand would be unleashed, but much of those price gains should prove temporary.

Gold is close to erasing this year’s decline as investors turn more bullish on the precious metal, with holdings in bullion-backed exchange-traded funds on an uptrend. While market-based measures of inflation expectations have dipped, traders remain cautious about price pressures as well as flare-ups in Covid-19 cases in some parts of the world.

Bitcoin - We have always seen bitcoin as a reason behind gold’s bearish behaviour. But this time the scenario was completely different. Bitcoin is up nearly 30% for the year but has fallen by almost half from its April record peak of $64,895. The volatility has undermined the case for its mainstream acceptance.

The catalyst for Sunday’s slump was that cryptocurrency “miners,” who mint cryptocurrencies by using powerful computers to solve complex math puzzles, were halting Chinese operations in the face of increasing scrutiny from authorities.

Extreme volatility in the Bitcoin-led cryptocurrencies encouraged traders to look again at gold as capital flows sought safety and stability. Investors weighed uncertainties and risks in trading the digital tokens amid doubts surrounding Main Street adoption and regulatory headwinds. Gold coins in India offer an alternative to cryptocurrencies for investors who are looking for assets that are non-fiat and therefore cannot be diluted by central bank easing.

Looking ahead, this Friday’s US core PCE inflation data will be closely monitored by traders for clues about rising prices levels and their ramifications for the economy as well as the Fed. Core PCE data is a key inflation gauge that the Federal Reserve uses to determine monetary policy. A higher-than-expected print may intensify inflation fears and drive market volatility.

It should also be noted that the Fed speak, coronavirus (COVID-19) updates and US Treasury yield moves will also be important for near term gold prices forecast. Overall, gold remains on the bull’s radar amid inflation fears.