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Home Commodities Gold prices may rise to Rs 74,000 on weak US employment data; Check out today’s trading strategies | Market News

Gold prices may rise to Rs 74,000 on weak US employment data; Check out today’s trading strategies | Market News

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Gold – Rising as central banks cut interest rates


performance:

Spot gold rose on Thursday after the European Central Bank cut its benchmark interest rate by 25 basis points. The rate cut was widely expected, but the central bank has not given clear guidance on future rate cuts. That said, given that the Bank of Canada cut its benchmark rate on Wednesday and the ECB followed suit, traders are hopeful that the U.S. Federal Reserve will follow suit sooner or later. Expectations have been building since most of the recent U.S. data has been disappointing.

Spot gold was trading at Rs 2,372, up 0.68 per cent, at close of trading on the MCX. August gold on MCX was up 0.83 per cent at Rs 73,123.


Summary of data and events:

The U.S. ISM Services Index for May, released on Wednesday, came in at 53.80 versus the expected 51, ISM Services Payments Prices came in at 58.10 versus the expected 59, and New Orders were in the expansion zone at 54.10, above the expected 53.20.

ISM services data beat expectations, showing the US services sector only temporarily contracted in April, while ADP data, a precursor to Friday’s US non-farm payroll report, came in at 152,000, below expectations of 175,000.

U.S. data released on Thursday showed that initial unemployment insurance claims for the week ending June 1 jumped from 221,000 to 229,000, while unit labor costs (final first-quarter estimate) fell 4%, well below the estimated 4.90%, due to reduced work hours and reduced production.

The European Central Bank cut its key deposit rate by 25 basis points to 3.75% after keeping it unchanged at 4% for nine months. The ECB assessed that the inflation outlook had improved significantly, but the central bank will take a meeting-by-meeting approach to future policy decisions.

The euro held up despite interest rate cuts due to uncertainty and the ECB raising its inflation forecast to 2.2% from 2% previously for 2025. The bank also raised its economic growth forecast for this year to 0.90% from 0.60%.


Yields and the Dollar Index:

The US Dollar Index was down 0.17% from the previous day at 104.17, while the 10-year Treasury yield was almost flat at 4.28%.


ETF Holdings:

Total global gold ETF holdings were 80.93 million ounces, up slightly from last week’s 80.811 million ounces.


Central Banks – Gold purchases continue:

April was a strong month for gold purchases as global central banks bought 33 tonnes of pure gold, according to the World Gold Association. China’s central bank bought just under 2 tonnes. The biggest buyer was Turkey’s central bank, which purchased 11 tonnes.


Chinese Buy Gold:

Chinese investors have been flocking to overseas gold as domestic prices soar, with worries about a shaky real estate market and a weaker yuan also fuelling domestic gold buying.


Yields and Dollars:

The US Dollar Index continues to show a steady decline. At the close of trading on MCX, the index was down 0.04% to 104.21, while the 10-year US Treasury yield was up 4.30%.


Future data:

The US non-farm payrolls report due on Friday will be crucial for the metal, which is likely to be slightly weaker than expected, according to ADP Data.


Outlook:

Spot gold is expected to trade in a range ahead of the release of the key non-farm payrolls data.

A weak US non-farm payroll report would be positive for the precious metal as it would increase the chances of an interest rate cut as early as July, in which case we would expect the precious metal to challenge the psychologically important $2,400 level.

Support is at $2,350 (Rs. 72,400)/ $2,340 (Rs. 72.100)/ $2,315 (Rs. 71,300) and resistance at $2,380 (Rs. 73,400)/ $2,400 (Rs. 74,000/ $2,450 (Rs. 75,500)).

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Disclaimer: Praveen Singh is Vice President, Fundamental Currencies & Commodities at Sharekhan by BNP Paribas. The opinions expressed here are his own.

First Edition: June 7, 2024 | 08:42 AM IST

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