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Informist, Thursday, Dec. 19, 2024

By Sandeep Sinha

MUMBAI – Futures contracts of gold fell on the Multi Commodity Exchange of India and COMEX as the US 10-year bond yields surged after the US Federal Open Market Committee lowered interest rates by 25 basis points to 4.25-4.50% early Thursday, and signalled two rate cuts next year as inflation remains above 2%. The sentiment was further weighed down by outflows in exchange traded funds and broad-based sell-offs across asset classes on an expectation of a less aggressive interest rate cut by the US central bank. 

The US 10-year Treasury bond yield rose to an over a month high and was up 0.8% at 4.54% as investors absorbed hawkish comments from US Federal Reserve Chairman Jerome Powell. "The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments," Powell said. Interest rates remaining higher for longer increases the opportunity cost of holding gold. The latest projection from CME FedWatch tool suggests that markets are now pricing in just one rate cut in 2025.

COMEX's gold price has broken below the crucial 100-day simple moving average placed at $2,634.68 an ounce, which will now act as strong resistance. The momentum indicator Relative Strength Index was at 41.39, suggesting further weakness in the price. The indicator is used by traders to measure the recent change in prices to analyse overbought and oversold levels. 

"Gold is vulnerable as the US yields and the Dollar Index have broken to the upside. The yellow metal may slide to test the cycle low around $2,536 an ounce in coming days," Praveen Singh, associate vice-president, fundamental currencies and commodities, at Mirae Asset Sharekhan said in a note.

On Wednesday, gold holdings with SPDR Gold Trust, the world's largest gold-backed ETF, fell by 290 kg to 863.90 tonnes. The fund has a market value of $73.19 billion. On the National Stock Exchange, the total value of gold ETFs traded on Thursday was INR 1.17 billion, up from INR 719.2 million on Wednesday. 

At 1845 IST, the most active February GOLD contract on the MCX was down 1.1% at INR 75,840 per 10 grams. The most active February contract on COMEX was 1.4% lower at $2,617.90 per ounce. The highest call open interest for gold was at the INR 78,000-INR 79,000 strike prices, suggesting a bullish view. The highest put open interest was at the INR 75,000-INR 73,000 strike for the Dec. 31 contract.

However, further downside in the yellow metal was limited due to weakness in the dollar, which makes commodities priced in the greenback cheaper for holders of other currencies. At 1845 IST, the dollar index, which measures the strength of the greenback against a basket of major currencies, was down 0.1% at 108.08.

SILVER prices extended their decline, taking cues from COMEX, and weakness in gold and industrial metals. At 1845 IST, the most active March contract of silver on the MCX was down 3% at INR 87,701 per kilogram. The same-month contract on COMEX was 3.5% lower at $29.65 per ounce.

On the options front, the highest call open interest was at the INR 100,000 strike price. The highest put open interest was at INR 90,000-INR 85,000 strike for the Feb. 24 expiry contract.

The MCX Bulldex, an index that tracks the real-time performance of gold and silver futures on the MCX, was down 328 points at 18450 points. As of 1849 IST, the February and April gold contracts recorded turnovers of INR 33.27 billion and INR 3.07 billion, respectively. The March and May silver contracts saw turnovers of INR 32.22 billion and INR 1.41 billion, respectively.

The spot gold-silver ratio, also known as the Mint ratio, rose to 89.04 on Thursday, indicating that silver outperformed gold. The ratio measures the ounces of silver required to buy an ounce of gold. The ratio was 87.11 on Wednesday.

Outlook for the rest of the session:

--MCX gold seen at INR 75,100–76,500 per 10 gm

--COMEX gold seen at $2,595.0–$2,645.0 an ounce

--MCX silver seen at INR 86,130-89,730 per kg

--COMEX silver seen at $29.50-$30.80 an ounce

End

US$1 = INR 85.07

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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