The metal rose on concerns about China’s economy as New Year’s fund inflows and China’s manufacturing PMI disappointed. It peaked at $2665 on better-than-expected US ISM manufacturing PMI.
On Friday the metal closed down 0.71% at $2640; However, it rose around 0.80% in the week.
Data roundup
The US ISM manufacturing PMI, released on Friday, rose to a nine-month high of 49.3 in December, up from 48.4 in November, and topped estimates of 48.20.
Excluding the US PMI data, global manufacturing PMIs (December) were largely disappointing as China’s Caixin Manufacturing PMI came in at 50.5 (estimated at 51.7) and NBS Manufacturing was also below estimates; Euro-zone manufacturing PMI came in at 45.1 (45.20 forecast); And the UK’s manufacturing PMI fell short of estimates of 47.30 at 47.
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Initial jobless claims in the US fell from 219K to 211K (estimated 221K) as continuous claims also fell sharply from 1896K to 1844K (estimated 1890K). S&P global US manufacturing topped estimates of 49.4 at 48.30, although construction spending data (November) was disappointing.
Next data
Key US data releases next week include S&P Global US Services PMI (December Final), Factory Orders (November), Durable Goods Orders (November Final), JOLTs Job Openings (November), ISM Services Index (December), ADP Employment . Change (December), Nonfarm Payroll (December) and University of Michigan Sentiment and Inflation Expectations (January preliminary). Investors will analyze the FOMC minutes (December FOMC meeting) to be released on January 9. China’s Caixin services will also focus on PMI (December), CPI and PPI (both December). From Europe, key data on the docket include euro-zone services and composite PMI (December), CPI (early December), Germany’s retail sales (November) and UK services and composite PMI (final December).
US Dollar Index and US Yield
The US ten-year yield has yet to break out of the cycle high of 4.641%, which was made on December 26. Yields moved in a range of 4.50%-4.63% on the week as yields settled at 4.60% on Friday, up about 0.86% on the day, though down about 3 bps on the week. Similarly, the two-year yield has yet to break the cycle high of 4.371% made on December 26. The two-year yield rose 0.92% on Friday at 4.387% but was down about 1% on the week.
The US dollar index rose to a new 52-week high of 109.53 on January 2. The index closed at 108.94 with a loss of around 0.40% on Friday but gained around 0.90% for the week, driven by risk-on sentiments. .
The emerging market currency index is seeing its longest streak of weekly losses since September 2022 as Trump’s Jan. 20 inauguration date approaches. The Chinese yuan breached the psychological mark of 7.3 per USD for the first time in late 2023 as yield spreads widened amid a struggling Chinese economy. The euro tumbled to its lowest level since 2022 as the pound tumbled to an 8-month low against the US dollar on growth woes amid concerns over US trade tariffs as the European Central Bank is expected to cut rates further.
Shanghai Gold Premium
The Shanghai gold premium over benchmark spot gold was $12.48 on January 3, a sharp increase from the -$13.80 discount seen on January 2.
ETF
Total known global gold ETF holdings on January 2 stood at 82.833 MOz, down from 83.161MOz in the week ended December 27.
Outlook
As January has generally been the best month for gold. However, the metal is expected to trade in a range ahead of US ISM services and nonfarm payrolls reports. Ten-year US yields may not break the recent range of 4.50%-4.64% before the release of these two critical reports.
Weakness with concerns over China and the European economies is likely to support EM currencies. At the same time, rising US yields and a strong dollar will cap upside. Support is at $2633/$2623/$2600/$2581, while resistance is at $2665/$2700.
It is advisable to buy dips with a stop loss below $2600 for a retest of the weekly high of $2665. A downside surprise in key US data could help the metal take a shot at $2700. Fund flows are also likely to support.
(The author is Associate Vice President, Fundamental Currencies and Commodities at Meera Asset Sherkhan)
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)
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