Gold prices continue to face downward pressure as crude oil prices remain elevated, according to Praveen Singh, Head of Currencies and Commodities at Mirae Asset ShareKhan. The precious metal has been caught between geopolitical tensions and robust US economic data, which have bolstered rate hike expectations.
Gold Performance
On June 8, spot gold extended its decline to $4,268, its lowest level since March 23, as Middle East tensions escalated with military strikes between Iran and Israel. Consequently, oil prices surged, amplifying rate hike concerns due to inflation worries. However, the yellow metal recovered after Iran and Israel ended their attacks. At the time of writing, spot gold was trading with an intra-day gain of 0.39% at $4,345.
Earlier, in the week ending June 5, gold slumped 4.67% following a much stronger-than-expected US non-farm payroll report for May and a stalemate in US-Iran negotiations, as Israel and Lebanon continued to attack each other despite ceasefire announcements.
Geopolitics and Oil
Israel and Iran engaged in a skirmish on Sunday, with Israel intercepting Iran's airstrikes while striking targets in Tehran and Mahshahr on Monday. Iran, in a rare display of defending its proxy Hezbollah, began its offensive with a warning that it would target all oil and gas facilities linked to Israel, the US, and their allies in the region if attacks on its own energy infrastructure continued.
Yemen's Houthis, another Iranian proxy, also fired missiles at Israel, vowing to ramp up attacks depending on the situation. Israel maintains that it cannot accept any ceasefire terms concerning Hezbollah. Crude oil prices, which had slumped over 2% on Friday, surged over 5% on Monday before trimming intra-day gains to 1.5% as Israel and Iran ended their strikes.
Data Roundup
New York one-year inflation expectations data released on Monday showed that expectations eased from 3.64% to 3.46%, versus the estimate of 3.72%, which also helped gold recover. The US non-farm payroll report released on Friday was robust, with employers adding 172,000 jobs in May, nearly twice the estimate of 88,000. The two-month payroll revision was 93,000, a sharp variation from the trend of hefty job revisions. Average hourly earnings came in at 0.3% (forecast 0.3%, prior 0.2%), while earnings grew 3.4% year-over-year, in line with the forecast but lagging the prior month's pace of 3.6%. Average weekly hours of all employees at 34.3 matched estimates and the previous month's data. The labor force participation rate and unemployment rate were steady at 61.8% and 4.3%, respectively. This was the third consecutive encouraging job report, which will alleviate the Federal Reserve's concerns about the labor market, thus increasing the probability of rate hikes.
US Dollar Index and Yields
At the time of writing, the US Dollar Index at 99.95 was down 0.10%. The index surged to 100.06, a nine-week high, in the week ending June 5. Two-year US yields, which shot up 4% to 4.15% last week, were steady, while ten-year yields, up 2.5% to 4.53% last week, were up 1 basis point.
Gold ETF Holdings
Total known global gold ETF holdings stood at 98.20 million ounces, the lowest since February 4 and down 0.75 million ounces year-to-date. Holdings have fallen 2.72 million ounces since the Iran war began on February 28.
CFTC Positioning
According to CFTC data for the week ending June 2, money managers increased their bullish gold bets by 14,410 net-long positions to 111,341, the most bullish in 18 weeks. Long-only positions rose 4,726 lots to 129,260, the highest in 11 weeks. Short-only positions fell from 9,684 lots to 17,919 lots, the lowest in about 16 months.
China Buys Gold for Nineteenth Straight Month
The People's Bank of China extended its gold-buying streak in May to the 19th consecutive month, purchasing 320,000 troy ounces. This is the longest streak since at least 2015, when the PBOC began publishing more regular updates on its gold reserves.
Upcoming Data and Events
Major US data on tap this week include the June CPI on June 10, the PPI report on June 11, and the University of Michigan Sentiment and inflation expectations on June 12. Traders will also monitor the Eurozone's Q1 GDP final data on June 5, China's trade balance on June 9, and China's inflation data on June 10. The European Central Bank will deliver its monetary policy decision on June 11, with the bank widely expected to hike rates by 25 basis points as inflation concerns mount due to high oil prices.
Gold Price Outlook
Despite a tentative recovery on Monday as Iran and Israel de-escalated tensions, gold is still not out of the woods as oil prices remain elevated with upside risk. Strong US data continues to support the rate hike thesis. Key data such as ISM manufacturing, ISM services, and the non-farm payroll report have been robust, showing the US economy's resilience amid high oil prices. US CPI data will be closely watched by traders.
Overall, the gold outlook remains bearish. It is advisable to sell into rallies as gold may fall to $4,000 in the coming weeks. Support is at $4,250 and $4,099. Resistance is at $4,366, $4,400, and $4,500.
Disclaimer: Recommendations and views on the stock market, other asset classes, or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India.
