Triggers expected to drive a rally in gold prices

 Gold lately has seen quite a lot of volatility. Last week we saw gold being the best performing precious metal, while this week it opened on a negative note.

The dip in Treasury yields last week helped boost the appeal of the non-interest-bearing metal suggested RSBL, one of the top gold dealers in India. Gold then stabilized later in the week as the dollar and Treasury yields pared some of their gains made in the wake of U.S. inflation data that came in significantly higher than expected. Prices paid by U.S. consumers surged in June by the most since 2008, topping all forecasts and testing the Federal Reserve’s commitment to sticking with ultra-easy monetary support for the economy.

Last week, the yellow metal found some life after Powell's testimony pushed back on recent hawkish pricing, while central banks and physical buyers also helped prop up markets. But, even as macro growth angst catalysed a re-pricing in expectations for Fed hikes, gold still could not catch a bid.

Gold fell below the psychological $1,800 an ounce level as-

• The U.S. new home sales missed expectations in June with a fall of 6.6%. The prior month’s number was also revised down. 
• New home sales were at a seasonally adjusted annualized rate of 676,000 homes in June, the U.S. Commerce Department said on Monday.
• May’s sales were revised down to a rate of 724,000 units from 769,000.
• The market consensus called for sales to advance to 800,000 units in June.
• On an annual basis, new home sales were down 19.4% from last year’s estimate of 839,000 units.

Gold ticked down following the data release, falling into negative territory. The gold market isn't able to break free of $1,800 an ounce as it is stuck and waiting for a new catalyst.

When evaluating the gold market one of the primary drivers of gold’s perception as a store of value is interest rates. There are two ways to look at interest rates. The nominal interest rates, which is the headline interest rates such as the 10 year Treasury Yields, and real interest rates Treasury yields adjusted for inflation. As inflation rises and Treasury Yields remain the same or move lower, real interest rates decline. This reduces the cost of holding a non interest bearing investment such as gold. Currently, real interest rates in US are negative. Therefore, the opportunity cost of holding gold is minimal, or to some, actually demonstrating a better return profile than cash or Treasuries.

Analysts at RiddiSiddhi Bullions Limited opined that, historically, gold prices typically rise as real or inflation-adjusted Yields fall deeper and faster into negative territory. Gold price have struggled in 2021. Interest rate experiences have reset higher in February. However recently interest rates have declined to the lowest level in five months. And monthly CPI data has increased. Therefore, real interest rates have moved significantly lower. Using the core CPI data analysed at 4.5% and the 10 year yield of 125 basis points, real interest rates is now running at -3.25%. In theory this should serve as a tailwind for gold prices

While a slower global growth profile, matched with transitory inflation, should keep Fed tightening at bay and eventually provide a beneficial environment for gold, risks remain in the near term. Given that gold's recent underperformance against slumping real rates continues to suggest a lack of investor interest, and consolidation of current market pricing that may result in higher real and nominal rates could still send prices lower.

Investors might have to wait until September to see how the next recovery phase unfolds. A new wave of the COVID-19 virus is sweeping through the U.S- , if the virus continues to spiral out of control, putting the recovery at risk, and then he would expect to see renewed interest in gold.

The triggers working in favour of gold price rally in the long-term are rising concern of global inflation that seems to be persisting further and increasing number of Covid-19 cases, which includes the delta variant cases in the US, some European nations and South-East Asian countries. Outlook for gold is still bullish and any dip in gold price should be seen as an opportunity by yellow metal.

Dont take off your eyes from gold

 Since the beginning of 2021, gold has witnessed a 5 % drop till date. It has been a rough path for gold as investors rotate out of the safe haven trade into riskier assets. The gold market continues to struggle as investors focus on the potential for tighter monetary policy and transitory higher inflation pressures.

Top gold dealers in India confirmed that the gold markets have been challenging to trade recently due to a stronger dollar. It was the strong USD that was clipping gold's wings. But before that, the USD index slipped fin 93.2 to 92.7 and 10y gained firm 1.15% to 1.29% amid US economic growth, uncertainty on Delta variant and inflation. Benchmark U.S. Treasury yields continued their bounce from five-month lows, further pressuring the bullion

Gold was subdued in volatile trade on Tuesday as the dollar strengthened, curbing inflows into the safe-haven metal despite some concerns over a surge in COVID-19 cases.

Gold prices hit a one-week low on Wednesday, though they’re up almost 2% in July. Gold price is pressurizing the lows, flirting with $1800 amid a renewed risk-on wave that has gripped the Asian market, as traders shrug off COVID worries for now.

Gold was down on Thursday morning in Asia, remaining close to a one-week low. Yellow metal once again lost its shine ass dollar strengthened, risk appetite increased as concern over surging COVID-19 cases subsided

Gold prices extended slide to their lowest in nearly two weeks on Thursday on the back of a rebound in stocks and firmer U.S. dollar, while investors looked to the European Central Bank for their stance on policy.

Spot gold fell 0.5% to $1,794.58 per ounce during Thursdays trading hours.

On the other hand, Dow regained the entire losses of Monday’s crash. Asian markets were seen rejoicing this recovery and India followed suit. Amid all the chaos and uncertainty, the focus will now shift to the upcoming FED meeting to be held this Wednesday... Powell’s new views on Wednesday will be of paramount importance, unlikely to do a tapering and boost for gold. As mentioned the heightened inflation and feared to be signs of stagflation, is a booster for gold since no one will focus on Dow then. So $1792-$1795 is still an immediate support from where there should be a recovery to $1810-$1815 possible while protective stop is at $1787-$1785.

But rising inflation could be setting gold up for a rebound.  We actually do see inflation tick up here; you can expect that gold will kick in.

A surge in coronavirus cases in the United States and other countries however spurred some safe-haven buying of bullion in recent sessions, with gold rebounding as much as 1.7% from Monday’s one-week low.

A lot of people in the gold market have taken their eyes off the ball this year, but if we get more bad news on the COVID front and equities weaken, you could get just that flight- to-safety buy in a market that can wake up pretty quick. RSBL analysts were of the opinion that world economies were moving towards recovery, trillions of dollars in U.S. fiscal spending, and the increasing demand for many metals as part of the global energy transition, should support commodities in the longer term, contributing to higher inflation expectations. In addition, ongoing monetary stimulus, alongside expected fiscal stimulus, adds conviction to the "here-for-longer" inflation case. While there are plenty of long-term fundamental factors that support gold prices, dollar and inflation continue to remain the most influential ones.