Informist, Thursday, Jul 4, 2024

By Sandeep Sinha

MUMBAI – Gold prices are likely to consolidate with a positive bias in July as escalating tensions in West Asia and the war between Russia and Ukraine are expected to boost safe-haven demand. The positive sentiment will also get a leg up as the wedding season resumes in India from mid-July.

On the Multi Commodity Exchange of India, August gold futures are seen at 70,400-73,400 rupees per 10 gm this month, according to the median of the estimates of 18 brokerage houses polled by Informist. On the COMEX, prices are seen at $2,280.5-$2,407.5 an ounce. The most-active August gold contract on MCX was last at 72,363 rupees per 10 gm and the August contract on the COMEX was at $2,364.6 an ounce.

"Gold remains stuck in a wide range with support continuing to emerge below $2,300 (per ounce) while resistance has been established ahead of $2,400. We expect gold to remain in consolidation phase until the market is convinced of a rate cut in the last quarter of 2024, while support will come from the gold ETF's which have shown positive inflows," Praveen Singh, associate vice president, fundamental currencies and commodities at Sharekhan by BNP Paribas said.

The focus will now be on US non-farm payrolls, consumer price index data, GDP and the Federal Reserve’s interest rate decision later this month for further cues. "Communication from the US central bank, regarding prospects of further rate cuts and inflation will be important to keep an eye on. Geopolitical developments are also giving jerks from side-lines; any significant improvement in the same could support prices from lower levels," said Manav Modi, bullion analyst at Motilal Oswal Financial Services.

Jewellers are reporting increased sales and enquiries ahead of the wedding season which will resume from Jul 15. This, along with robust imports and continued buying by the Reserve Bank of India are seen supporting the yellow metal. The gold reserves held by the RBI rose to an all-time high of 834.2 tn after it bought 2.8 tn of the yellow metal in the first week of June, World Gold Council said in a note. The central bank has bought 30.6 tn gold so far in 2024.

The country’s gold imports in May rose to 46.25 tn from 42.47 tn in April, according to commerce ministry data. In the first five months of 2024, the country’s gold imports rose nearly 30% to 261.66 tn from 201.41 tn, the data showed. India is the world second-largest importer and consumer of gold after China.

Meanwhile, money managers have increased their net long position in COMEX gold by 5,489 lots to 184,710 lots as of Jun 28, indicating a strong appetite for the yellow metal, according to Commodity Futures Trading Commission data. In the first three days of July, gold holdings with SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 5.75 tn to 834.8 tn, after remaining nearly steady last month.

The upcoming Budget later this month will also be keenly watched as various jewellers associations have written to the government requesting a cut in customs duties on gold imports. The high import duty and record-high prices in the domestic market have led to a surge in smuggling activity.

In June, the yellow metal delivered a negative 0.4% on-month return on the Multi Commodity Exchange and 0.3% on COMEX as investors booked profit at higher levels. In the first half of 2024, the yellow metal delivered a 12.9% return on COMEX and 13.3% on MCX.

"June was a quiet month with gold prices consolidating after hitting record highs in March, April and May. Gold prices have been trading in the range of $2,300 (71,000 rupees) to $2,380 (73,000 rupees) for the past few days waiting for a catalyst for either side breakout," said Prithviraj Kothari, the managing director at RiddiSiddhi Bullions Ltd.

"The level of $2,300 is very important neckline support for Head and Shoulder formation on daily charts. If prices break this level, gold could fall by 4-5%. However, if prices sustain above $2,380 per oz, bearishness would be negated, and we could see follow-through buying and a bull trend towards $2,400 and $2,450." Kothari said.

If the US labour market and inflation data surprises the street with higher readings in coming months, we could see gold testing the support of $2,250-$2,200 per oz, otherwise gold is expected to make fresh highs in the second half of 2024 on rate cut scenario. We advise buying at every dip in the counter as of now, Singh said.

However, cooling investor demand in top consumer China and the People's Bank of China pausing gold purchases in May after 18 months of successive buying may weigh on bullion prices. "The gold price is currently lacking a key pillar of support, which in turn makes it more dependent on investment demand," Carsten Fritsch, a precious metal analyst at Commerzbank AG said in a research note.

The dollar index, which measures the strength in the greenback against a basket of major currencies, rose 1.2% in June, limiting an uptick in yellow metal prices. The Federal Open Market Committee’s June meeting minutes released on Wednesday showed members observing that if US inflation persists at an elevated level or to increase further, the target range for the federal funds rate might need to be raised, which will also weigh on precious metals.

Investors will take cues from the European Central Bank and Bank of Japan’s interest rate decision this month.

Following is a summary of the poll by Informist on gold prices in July and details of estimates by respondents, in alphabetical order:

End

US$1 = 83.49 rupees

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

Edited by Maheswaran Parameswaran

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