Gold delivers a weekly positive close on Fed pivot anticipation

Spot gold closed with a weekly gain of nearly 1.10% at $2002.85 as traders look forward to a possible Fed pivot. The metal gained 0.60% Friday.

S&P Global US PMI data was released Friday. US manufacturing PMI (November preliminary) at 49.40 trailed the forecast of 49.90, however, services and composite PMI at 50.80 and 50.70, respectively topped the respective estimates of 50.30 and 50.40. The US Dollar Index fell despite overall encouraging US data on risk-on sentiments as wider markets were up. The US Dollar Index edged lower by 0.34% to close at 103.42 Friday. The Index was down around 0.50% on the week. Soft landing notions and better-than-expected European PMIs are also hurting the Greenback.

Ten-year US yields at 4.47% were up by 2 bps Friday, and were up approximately 1% on the week. Similarly, the two-year yields were up by 2 bps Friday and closed around 1.25% up on the week to close at 4.96%.

Total known global gold ETF holdings fell 0.06 MOz in the week through November 23.

Gold buyers are looking at the possibility of the Federal Reserve pivoting next year, which is keeping the metal bid. Markets anticipate the first Fed rate cut in May.

However, considering the fact geopolitical tensions are subsiding and the latest European and US PMIs have been encouraging, the metal is quite overextended. In addition, core PCE deflator inflation data of the US remains at double the Fed’s target of 2%. With expanding services PMI and a decent job market, the probability of a 100 bps rate cut next year can easily decline with some encouraging macroeconomic US data. Thus, gold may find it difficult to advance much higher from the present levels on a sustainable basis. Crude oil has given up all the geopolitical risk premium as the Hamas-Israel war has remained largely confined.
It is to be noted that five-to-ten-year University of Michigan inflation expectations (November final) reported earlier in the week stood at 3.20%, which is a twelve-year high, while one-year inflation expectations came in at 4.50% vs the forecast of 4.40%. Weekly jobless claims (November 18) fell to 209k (forecast 227k) from the previous reading of 233k as continuing claims (November 11) fell to 1840k from 1862k (forecast 1875k). Even FOMC minutes of the FOMC meeting concluded on November 1 were not so dovish. The minutes revealed that the members felt that progress made on inflation was limited, thus they needed to see more evidence of inflation falling further to call it a victory.India’s gold imports in October surged 60% on a YoY basis. India imported 123 tonnes of gold in October 2023 as compared to 77 tonnes imported in the same month last year to meet festive season demand as prices fell.

Next week’s major US data docket includes the FHFA house price Index (September), new home sales (October), Conference Board Consumer Confidence (November), Q3 GDP (second estimate), Fed’s preferred inflation gauge PCE deflator inflation data (October), pending home sales (October) and ISM manufacturing (November). Major Euro-zone data to be released next week include Euro-zone’s consumer confidence, economic confidence, industrial confidence ( November), CPI (November), manufacturing PMI (November final) and Germany’s CPI, employment report (November) and retail sales (October), and manufacturing PMI (November final). Major UK’s data nationwide house PX (November) and manufacturing PMI (November final). China’s manufacturing and services PMI data will also be in focus.

Support for gold is at $1975/$1960, while resistance is at $2010, followed by $2025.

Presently, markets are scrutinizing each and every US data to cement the notion of Federal Reserve pivoting. Gold will need sustained weakness in the US data to advance significantly from the current levels.

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

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