Gold may slide lower if Middle East tensions remain. Buy on dips

Spot gold fell for six consecutive days before rising on October 10. The metal extended its recovery on October 11. The yellow metal, taking support at $2600, recovered quickly on stagflationary US data that showed higher inflation and a deterioration in the job market and consumer sentiment.

Spot gold on Friday closed up nearly 1% at $2657; It was up about 0.20% on the week.

Data roundup

US CPI data (September) was warmer than expected on all counts: CPI mom came in at 0.2% (forecast 0.1%), while CPI yr was recorded at 2.4% (forecast 2.30%). Core CPI rose 3.3% year-on-year (estimated 3.20%), the fastest pace since June, while core CPI mom came in at 0.30% (estimated 0.20%). Initial jobless claims rose by 33K to 258K in the week ended October 5, the most since August 2023 as continuous claims were higher at 1.86 million than the forecast of 1.83 million. It is possible that hurricanes in the US had a negative impact on jobs data, so upcoming data will be sought for a clearer picture.

US data on Friday was hardly better: University of Michigan consumer sentiment unexpectedly fell to 68.90 in October (estimated at 71) from 70.10 in September, the first decline in three months. In addition, inflation expectations rose to 2.90% in the coming year, the first increase in five months and above the 2.70% expected in September Final demand (September) PPI for mom 0.2% (forecast 0.20%), while PPI ex-food and energy 2.80% year ( 2.60% estimate). PPI final demand mom came in at 0% (forecast 0.10%) while PPI final demand 1.80% was warmer than forecast 1.60%, although it was the smallest since February.

Next data

Key US data on deck next week include Retail Sales Advances (September), Philadelphia Business Outlook (October), Weekly Jobs Data, Industrial Production (September), NAHB Housing Market Index (October) and Housing Starts (September). China’s data docket is heavy as it includes PPI and CPI (September), trade balance (September), new home prices (September), GDP (3Q), retail sales (September), industrial production (September), property investment (September). ) included. ), residential property sales (September) and the jobless rate (September). In addition, China’s finance minister will hold a press briefing on Saturday to detail the fiscal stimulus.

Geopolitics

As Israel continues to consider its measures to retaliate against Iran for its missile attack, a security cabinet meeting on Thursday remained inconclusive. Meanwhile, Israel continues to strike Hezbollah in Lebanon with air and ground attacks. The US has expressed its concern over the Iran-Israel conflict raising energy prices and damaging the global economy. The Israel-Hamas war in Gaza continues without any ceasefire.

US dollar index and yield

The US dollar index quickly recovered from the 100 support line as a stellar non-farm payrolls report and warmer-than-expected inflation data reduced prospects for aggressive Fed easing this year. The index, after nine straight days of gains, was slightly lower on Friday; However, in the week it was around 0.40%. The ten-year US yield, up one bps on Friday to 4.10%, rose sharply by about 3% on the week, while the two-year yield at 3.96% was up about 0.70% on the week.

ETF

Total known global ETF holdings on October 10 were 83.434 Moz, slightly lower than the 83.54 Moz seen during the weekend ending October 4.

Outlook

Gold is driven by ETF inflows, safe haven demand and disappointing US data. The fact that the metal was up for the week despite higher US yields and a stronger US dollar is very positive for it. Next week is a busy week on the data front. If geopolitical tensions remain largely contained, gold could drop earlier in the week. However, dip buying continues to be the strategy of choice. Overall, it is trading in the range of $2600-$2685, which may continue until geopolitical tensions rise. US retail sales data will be closely watched by traders.

Support is $2640/$2625/$2600. Resistance is at $2675/$2685/$2700.

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

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