Gold may decline on reduced safe-haven demand; Support is seen at $1969

Gold closed with a weekly loss of 1% at $1982.89. The metal was hammered lower Friday on better-than-expected S&P US global PMIs data. Repeated attempts to take out stiff resistance at $2020 have failed, which makes gold somewhat vulnerable in the near-term.

S&P global manufacturing PMI preliminary data for April showed that the US manufacturing expanded as the Index stood at 50.40 as against the forecast of 49, thus marking the first expansion in the last six months. Selling prices also increased.

Similarly, the US S&P global services data at 53.70 beat the forecast of 53.50. This was the fastest expansion in the last year. Selling prices were up as well.

Ten-year US yields at 3.568% were up nearly 1.40% on the week, while the US Dollar Index at 101.82 was nearly 0.30% higher on the week ending April 21.

The following factors go against the yellow metal in the present situation:

– It is overbought with respect to the yields.

– Banking concerns are subsiding.- June FOMC monetary policy meeting is going to be an open meeting as the University of Michigan’s one-year consumer inflation expectations rose sharply higher.

– Dollar weakness factor is related to risk-on sentiments,too, which might not support gold for long.

On the positive side, some of the key US economic indicators are flashing warning signs, which is supportive for the metal. Such data include:

– Philadelphia Fed business outlook data contracting month-on-month for the eighth straight month.

-Leading Economic Indicator in negative for twelve months in a row.

– elevated US weekly jobless claims

– decline in headline retail sales data

– strong buying by the official sector (central banks).

The US Fed speakers are in a blackout period until the FOMC policy decision in the first week of May, so we won’t be hearing their views about the US economy and possible US rate path.

Next week, investors will look forward to the US Q1 2023 GDP data and core PCE price Index (March), the Federal Reserve’s preferred gauge of inflation, which continues to be well above the Fed’s intended target of 2%.

Gold is getting support on the weak Dollar narrative as market participants see the US Federal Reserve nearing a pause in its rate hike mission while the European Central Bank and Bank of England seen hiking further as inflation remains elevated in the Euro-zone and the UK. Presently, gold strength is mainly about Dollar weakness rather than its safe haven attribute.

Gold is currently highly volatile as the data-to-data move is huge. The metal may decline to $1950 (support level of multiple lows) next week on reduced demand for safe assets. Support is at $1969, while resistance is at $2020 followed by $2035. The key resistance is at $2050.

(Praveen Singh, The author is AVP, Fundamental currencies and Commodities analyst at Sharekhan by BNP Paribas)