Gold (Image: Shutterstock)
Gold price today: Spot gold was trading at a loss of about 0.45 percent at $2,570 at the close of the MCX. The October MCX gold contract closed at Rs 73,150 (LTP), down 0.49 percent.
The metal was slightly lower than expected US data released on Tuesday.
Data collection: Retail sales, industrial production rise in August in US;
US retail sales advance (August), a key component of US GDP, came in at +0.1% mom versus the forecast of -0.20 percent as July data was revised upwards from 1% to 1.10%. Auto and ex auto and gas retail sales were up 0.10 percent (forecast 0.10 percent) and 0.20 percent (forecast 0.30 percent), compared with consensus forecasts of 0.20 percent and 0.30 percent.
The group’s retail sales index, a more accurate gauge of consumer spending, matched the 0.30 percent forecast, while July’s data was revised higher from 0.30 percent to 0.40 percent. Industrial production rose 0.90 percent in August (forecast of 0.20 percent) as the NAHB housing market index (September) matched the forecast of 41.
Data and upcoming events: The monetary policy decision of the US FOMC to be announced tonight at 11:30 PM IST is the most important decision for the markets as the Central bank will begin its tapering cycle. While economists are predicting a 25-bps rate cut, markets are discounting the possibility of a 50-bps rate cut as well. As reported in the Wall Street Journal a few days ago, the members of the US Fed debated whether they should cut 25 or 50 bps. This uncertainty is somewhat strange since the Fed has always believed in clear, telegraphed decisions in its communications.
It should be noted that the probability of a 50-bps cut was not affected by retail sales and industrial production data as it stood at around 63%.
Regardless of the FOMC’s monetary policy decision, markets will be looking at US housing starts (in August), too.
US Yields and the Dollar: Higher
US manufacturing was slightly firmer in an encouraging set of US data. The ten-year US yield was seen at 3.65 percent, up 0.75 percent on the day, while the two-year yield at 3.59 percent was up more than one percent.
The US Dollar Index at 100.99 rose 0.22 percent on the day.
ETFs: It reaches its highest level since mid-February
As of September 16, the ETF’s known gold stock stood at 83.243MOz, the highest level since mid-February.
Interest in BRICS: The TASS report quoted Russian President Vladimir Putin as saying that approximately 34 countries want to join BRIC during the campaign to withdraw the dollar. The BRIC Summit will be held from October 22- October 24 in Kazan, Russia.
Outlook: Risk management should be advised to minimize danger from the US The Fed’s policy decision
While the outlook for gold remains positive on central bank purchases, geopolitical concerns, the US financial meltdown, rising global debt to GDP ratio, concerns about the Chinese economy, the US recession as the job market weakens and falling yields as the global economy struggles, near-term prospects will depend on US Fed policy to a large extent. Although economists expect the Fed to begin its cycle of 25-bps rate cuts this evening, markets are discounting a possible 50-bps cut. Currently, the markets are giving the odds of about 0.63 in the event of the Fed cutting rates by 50-bps. Such uncertainty is unusual since the Fed does not like to surprise the markets.
Gold is likely to rise to challenge the resistance of USD2,650 (Rs 75,200) and USD 2,700 (Rs 76,500) if the Fed cuts rates by 50-bps; However, a 25-bps cut could see the metal correct to the USD 2,500 mark (Rs 71,200) in the near term. Thus, proper risk management is required to reduce FOMC risk. The nearest support is at Rs 72,600.
(Disclaimer: Praveen Singh is Vice President of Equity and Commodities at Sharekhan by BNP Paribas. The views expressed are his own.)
First published: Sep 18 2024 | 10:25 AM IST