More Stories

Informist, Wednesday, Sep 4, 2024

 

By Sandeep Sinha

 

MUMBAI – After hitting fresh lifetime highs in August, gold prices in global markets witnessed a degree of weakness because of profit taking by traders. This correction is likely to continue in September due to weak demand in top consumers China and India. An expected interest rate cut of 25 basis points by the US Federal Reserve later this month has already been priced in and is, therefore, unlikely to support prices.

 

The period of Shradh, or Pitru Paksha, from Sep 17 to Oct 2 is likely to hurt demand for bullion, as Hindus consider the period inauspicious and refrain from buying precious metals then. 

 

For now, investors await US non-farm payrolls data for August and the US Federal Open Market Committee's meeting later this month. Analysts polled by Dow Jones estimated the payrolls figure to come in at 161,000, against 114,000 in July. This may push up the US dollar, reducing demand for the non-yielding yellow metal.

 

"This week's focus will be the US non-farm payrolls for August, which may impact the Fed's interest rate cuts and the gold price in the near term. The US economy is predicted to add 163,000 jobs in August. The unemployment rate is predicted to fall to 4.2%. According to the CME FedWatch tool, markets are currently pricing in a nearly 69% likelihood of the Fed cutting interest rates by 25 basis points in September, with a 31% chance of a 50-bps decrease," said Prithviraj Kothari, managing director og RiddiSiddhi Bullions Ltd.

 

Kothari said gold needs to sustain above its previous high of $2,532 per ounce before confronting the next important hurdle at $2,550. If that is also cleared, the target would be $2,600.

 

Historically, gold and silver have experienced declines in September, said Manav Modi, bullion analyst at Motilal Oswal Financial Services.

 

On the Multi Commodity Exchange of India, October gold futures are seen at 70,000-73,000 rupees per 10 gm this month, according to the median of the estimates of 17 brokerage houses polled by Informist. On the COMEX, prices are seen at $2,450-$2,585 an ounce.

 

At the time of writing this report, the most-active October gold contract on MCX was at 71,118 rupees per 10 gm and the most-active December contract on the COMEX was at $2,487.9 an ounce. On Aug 28, gold hit an all-time high of $2,564.30 an ounce on the COMEX after dovish comments by Federal Reserve Chairman Jerome Powell.

 

In his keynote speech at the central bankers' conference ­in Jackson Hole on Aug 23, Powell said the "time has come" to cut interest rates. "The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks," he had said.

 

In August, the yellow metal delivered returns of 3.8% on month on the Multi Commodity Exchange and 2.2% on COMEX due to expectations of a US Fed interest rate cut and safe-haven demand. For the first eight months of this year, the yellow metal delivered 20.8% returns on COMEX and 13.3% on MCX. The returns in the domestic market pale in comparison to those in the international market, as Finance Minister Nirmala Sitharaman had, in her Budget 2024-25 (Apr-Mar) speech on Jul 23, announced a cut in the basic customs duty on gold and silver from 15% to 6%, which led to a sharp drop in gold prices.

 

However, the downside was cushioned by fresh flows into gold exchange-traded funds, geopolitical tensions in West Asia, and a weaker dollar. The dollar index, which measures the strength of the greenback against a basket of six major currencies, fell 2.6% on month in August to 101.25. A weak dollar makes commodities priced in the greenback attractive for holders of other currencies, boosting demand for precious metals.

 

Despite efforts from Western nations to enforce a ceasefire between Israel and Hamas, such a deal has been elusive so far. Also, ongoing skirmishes with Lebanon-based militant group Hezbollah risk the possibility of widening the conflict in the volatile region, resulting in higher safe-haven demand for gold.    

 

Gold holdings with SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose for the second straight month by 16.7 tn to 862.74 tn in August as investors switched to safe-haven assets.

 

"Looking at current factors, we believe both metals (gold and silver) have formed some strong base. However, it could trade in a broad range till we don't get clarity on US interest rate cuts and geopolitical tensions," Manav Modi said.

 

Investors will now take cues from the Bank of England's interest rate decision, China's loan prime rate, the US Federal Open Market Committee's policy meeting, US consumer price index data, and US final GDP data for Apr-Jun during the month.

 

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

 

Brokerage house	MCX support (rupees/10 gm)	MCX resistance (rupees/10 gm)	COMEX support ($/oz)	COMEX resistance ($/oz)
Angel One	69,400	75,900	2,449	2,610
Axis Securities	70,500	72,500	2,480	2,580
BlinkX by JM Financial	69,700	73,170	2,460	2,620
Finlit Consulting	70,500	73,000	2,500	2,600
HDFC Securities	70,700	72,900	2,450	2,570
ICICI Securities	70,000	73,200	2,400	2,580
Kedia Comtrade	70,600	72,600	2,440	2,560
Kotak Securities	70,000	73,500	2,470	2,603
LKP Securities	70,000	72,500	2,470	2,520
Mehta Securities	68,500	73,500	2,445	2,550
Motilal Oswal	68,700	74,000	2,430	2,600
Prithvi Finmart	70,750	72,300	2,464	2,600
Reliance Securities	70,890	72,288	2,498	2,570
RiddiSiddhi Bullions Ltd	71,000	72,500	2,485	2,550
SMC Global	70,000	72,900	2,450	2,681
Sharekhan by BNP Paribas	70,000	73,000	2,400	2,585
Vijay Bhambwani	69,263	73,156	2,430	2,597
Median	70,000	73,000	2,450	2,585

 

End

 

US$1 = 83.97 rupees

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

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.