Geo-political tensions are a strong tailwind for gold. Buy yellow metal on dips

Spot gold traded between $2564 (18/11/2024) and $2716 (22/11/24) in the week ended November 22 as it staged an impressive recovery after falling nearly 5% in the week ended November 15.

Safe-haven demand for the metal was fueled by fears of a Russia-Ukraine war that intensified after Ukraine fired American ATACMS and British Storm Shadow long-range missiles into Russia. Russia retaliated by launching a new type of ICBM; Thus, the geopolitical situation is worsening.

Spot gold closed at $2716 on November 22 with a massive gain of 1.76%; It was up more than 2% on a weekly basis; Thus, it has recovered most of the losses since Trump’s victory.

In a significant development, the metal hit a record high in euro terms on Friday.

Data round-up

US data on Friday was mixed as the S&P Global Services PMI (November) came in at 57 (estimated at 55) but the Manufacturing PMI at 48.80 came in below forecasts of 48.90. University of Michigan sentiment (Nov. final) fell to 71.80, short of forecasts of 73.90. PMIs outside the Eurozone were disappointing as PMIs for Germany (49.40 Vs 51.70 forecast) and Eurozone (49.20 Vs 51.60 forecast) contracted unexpectedly. Germany’s Q3 final GDP came in at 0.10%, below forecasts of 0.20%.

UK data wasn’t much better: October retail sales (-0.90% mom, estimate -0.40%), November manufacturing PMI (48.6, estimate 50) and services PMI (50, estimate 52) painted a picture of a worsening economy.

US continuous claims hit a three-year high even as jobless claims remained at a comfortable level.

ETFs

Total known global gold ETF holdings on November 21 were recorded at 82.987 MOz, compared to 83.118 Moz the previous weekend. Thus, holdings have come down sharply from the cycle high of 84.143Moz on October 23.

Dollar Index/Bond Yield

On Friday, the US dollar index rose to 108.07, off a 2-year high of 108.10, on weak European data and heightened geopolitical tensions. The euro fell to its lowest level against the US dollar since 2022 as the zone’s private sector unexpectedly contracted for the first time since January.

The dollar index was up 0.49% on Friday; Its weekly gain was around 0.80%.

The ten-year US yield was almost flat on Friday at 4.41% and down 3 bps on the week, while the 2-year yield at 4.38% was up about 0.75% on a daily basis and up about 2% on the week. .

Next data

Key US data releases next week include new home sales (October), Conference Board Consumer Confidence (November), FOMC meeting minutes (November 7), GDP (3Q, secondary reading), personal income and spending (October). . , PCE Price Index (Oct)–Fed’s Inflation (Oct) Germany and Eurozone CPI estimates (pre-Nov), German and French jobs data (Nov), and France’s GDP (Q3 final) will also be in focus.

fedspeak

Chicago Federal Reserve President Austin Goolsby supported further interest rate cuts, albeit at a slower pace. Federal Reserve Bank of Richmond President Tom Barkin said he expected inflation to continue to decline across the US but warned that the US was more vulnerable to inflationary shocks than in the past. Federal Reserve Bank of New York President John Williams said he sees inflation cooling and interest rates falling further.

Outlook

Spot gold has erased almost all of the sharp losses experienced on Trump’s victory in the US presidential election. Geopolitical factors continue to act as a formidable tailwind as traders worry about the ominously evolving situation in the Russia-Ukraine war. Putin has made his intentions clear by deploying a new type of medium-range missile capable of carrying a nuclear payload. The threat of Russia using strategic nuclear weapons is great. At the same time, the West continues to move forward as the US sanctioned Russian bank Gazprom on Friday to hurt the latter’s natural gas exports.

In the current scenario, buying dips has once again become the strategy of choice. Bulls are eyeing the next critical resistance at $2750 a breach of which will put the all-time high of $2790 in their focus. Support is $2685/$2661/$2640.

If there is no major geopolitical upset at the end of the week, the metal could slide early in the week. However, dips should be bought as multiple risks abound as the European economy looks fragile.

(The author is Associate Vice President, Fundamental Currencies and Commodities at Sherkhan by BNP Paribas)

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)