Investors Are Optimistic About Gold

In the previous session, gold prices were tailored into a tight range as investors and bullion dealers in India were caught up between pressure from prospects of higher interest rates and support from recession risks. While the bull camp can periodically seize control, the gold market has been unable to throw off a recent pattern of lower highs and lower lows, and more importantly, prices have not shown a definitive bullish sensitivity to the classic bullish developments.

With gold periodically lifted by economic uncertainty, yesterday's stronger-than-expected US durable goods readings tampered with uncertainty and likely caused some long liquidation yesterday. Going forward, seeing positive US economic data released on the tail of the solid and durable goods report potentially rekindling widespread expectations of a 75-basis point rate hike next month and would likely prompt a fresh wave of long liquidation/fresh selling in gold and silver. Therefore, gold and silver remain under a liquidation watch.

The price of the yellow metal has been mostly rangebound for June, which has made for shorter-term two-way business between the final weeks of the month between $1,848 and $1,820 in the main. However, rather than rebounding from down here, the price is starting to eat into liquidity below with bulls checked by gains in the US dollar and inflationary pressures that are running at a 40-year high. Higher US yields, as a consequence, are detrimental to the yellow metal since gold does not offer investors and bullion dealers in India any yield.

That said, the gold traders and gold dealers in India should keep their eyes on the monetary policy discussions among the central bankers from the US, the UK, and the European Union (EU) at the ECB Forum seem for a fresh impulse. The US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, could entertain traders.

The US Federal Reserve policymakers promised further rapid interest-rate hikes to bring down high inflation on Tuesday. Still, they pushed back against growing fears among investors, gold dealers in India, and economists whose sharp higher borrowing costs will trigger a steep downturn.

Although gold is seen as an inflation hedge, higher interest rates and bond yields raise the opportunity cost of holding bullion, which yields no interest. It is worth noting that the latest weakness in the macro data joins inflation fears and geopolitical tussles surrounding Russia and China to amplify the risk of economic slowdown.

After peaking at the more tremendous highs from earlier in the year, gold prices have now been weighed down by a strong US dollar. But markets continue to remain optimistic and expect the gold price to rise by the end of the year- thanks to high inflation, ongoing geopolitical tensions, and the threat of recession. So, hopefully, gold awaits to enter the bulls by the end of 2022.

Everything Is Down & So Is Investor Confidence

Fed’s Powell has never been so elaborative where he sounds cautious on future job markets and added comments on the US economy and inflation prospects on globalization. He also stressed on a reverse theme, which means the global trade (inter-country) might shrink going forward, and factors may be running war with China. Later, the Fed’s Evan released a strong statement stating, “witness a slowing pace of hikes to 0.25% steps before December” - maybe all these helped recede the USD index at 103.4.

Precious metals could continue to struggle as the US dollar trades around its highest level in 20 years, much to the chagrin of the gold dealers in Mumbai. The widening gap in global monetary policy, with the Federal Reserve leading the charge on interest rate hikes, is supporting the US dollar’s current rally. There are growing expectations that the Federal Reserve will raise interest rates by 50-basis points at the next three monetary policy meetings.

By Wednesday/Thursday, the US markets sank to almost CY 2022 lows. This nasty fall in US Dow -1200 overnight, after leading a pivotal fall from -6% to -28% in a single day, (Walmart, Tesla, Target, Apple etc.) add this fall. It continued as Fed members commented on the interest rates going forward. The notable Mr Harker said - "0.50% in June and 0.50% in July policy, only then the Fed will achieve the 2% target inflation".

Most of the policy thinkers in G-7 are brainstorming on averting stagflation, recession, and how to deal with hyperinflation. Still, the equity markets are witnessing a real carnage as liquidity support has been withdrawn (Earlier stimulus and now balance reduction across). Amidst all this, a hope from China to open up in June as they mention allowing more business options in zero covid areas. This should act as a booster for most base metals, following suit, silver will not lag, giving the  gold dealers in Mumbai a sigh of relief.

Gold is bouncing from the lows of $1800, but the overall trend still is bearish, according to the largest gold dealers in India. A small bounce might be because gold prices are trading near an oversold region, but investors are reluctant to take long positions when fundamentals point to lower prices. The rally in the US dollar and treasury yields is providing a lid on gold prices. The entire premium from the war between Russia and Ukraine has been eroded away, and even if the conflict worsens, we may not see any spike in prices as investors are focused on inflation and higher interest rates.

We see the short-term path of least resistance shifting to gold and silver, as the markets have consistently disappointed the bull camp over the last 30 days. In fact, without the very significant range down the action in the dollar resuming, fresh modest economic optimism and a pause in hawkish Fed dialogue, gold and silver look to stall and chop newly established ranges. However, if pushed into the market, we prefer selling rallies in gold above $1828 and selling rallies above $21.77 in the July sale.