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.