Spot gold prices declined on Tuesday after a brief rebound on Monday, influenced by the hawkish stance taken by US Federal Reserve officials on interest rates. Additionally, Canada’s higher-than-expected inflation figures added to the downward pressure on gold. The anticipation of a strong monthly job report further weighed on the precious metal.
At the time of the MCX closing, spot gold was trading at $2,319, marking a 0.64% decrease for the day. The MCX August gold contract stood at Rs 71,460.
Federal Reserve Comments:
Federal Reserve Governor Michelle Bowman emphasized the presence of several upward risks in the inflation outlook, advocating for keeping borrowing costs elevated for the foreseeable future.
Governor Lisa Cook expressed a more tempered view, suggesting that a reduction in interest rates might be appropriate as inflation trends are expected to gradually improve in the future. However, the timing of any rate adjustments will be based on evolving economic data and their impact on the economic outlook and risk assessment.
US Dollar Index and Treasury Yields:
The ten-year US yields rose to 4.243%, up 0.12% at the MCX closing, recovering nearly 1% from the day’s low. The US Dollar Index also saw a modest increase, reaching 105.63, up by 0.15%.
Economic Data Overview:
The US CB Consumer Confidence Index dipped to 100.40 in June from 101.30 in May, with the Present Situation Index improving while the Expectations Index declined slightly. The upcoming nonfarm payroll report for June is anticipated to be robust based on positive labor market indicators.
Analysis of various economic surveys and reports suggests a potential strengthening of employment figures, with both the service and manufacturing sectors showing promising growth trends.
Canada’s consumer price index revealed a y-o-y increase of 2.9% in May, surpassing previous estimates and indicating a higher-than-expected inflation rate.
ETF Flows:
Global gold ETF holdings showed a slight increase on June 24, reaching 80.874 Moz, although slightly lower than the previous week’s levels.
Upcoming Data Releases:
Key US economic data to watch for include new home sales for May, with a greater focus on the Q1 final reading of US GDP and the PCE deflator inflation data scheduled for release later in the week.
Market Outlook:
Gold is expected to face bearish pressure leading up to the release of crucial US economic indicators. Factors such as elevated Canadian inflation, hawkish comments from Federal Reserve officials, expectations of a strong nonfarm payroll report, and a potentially firming US Dollar are likely to keep gold prices under strain.
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Disclaimer: Praveen Singh is an associate vice president of fundamental currencies and commodities at Sharekhan by BNP Paribas. Views expressed are his own.
First Published: Jun 26 2024 | 8:24 AM IST
### Additional Insight:
#### Impact of Policy Decisions:
The contrasting views of Federal Reserve officials highlight the uncertainty surrounding interest rate adjustments and their potential impact on inflation and economic growth. This ambiguity could contribute to market volatility in the near term.
#### Market Sensitivity to Economic Data:
Given the market’s responsiveness to economic data, upcoming releases such as the US GDP and PCE deflator inflation figures are likely to drive investor sentiment and influence commodity prices, including gold.
#### Global Factors Affecting Gold Prices:
The interplay of factors like Canadian inflation, global economic indicators, and geopolitical developments can create a dynamic environment for gold prices, emphasizing the need for investors to monitor multiple variables when assessing market trends.
