In the current financial landscape, spot gold prices are poised to respond to fluctuations in the projected likelihood of a rate cut by the US Federal Reserve in December. According to Praveen Singh, Senior Fundamental Research Analyst at Mirae Asset Sharekhan, the expectation surrounding potential interest rate adjustments by the Fed is a significant factor influencing the prices of both gold and silver.
As of November 24, spot gold demonstrated resilience, recovering from earlier losses in the Asian market to trade at approximately $4,095, marking a 0.70% increase within the day. In contrast, the December MCX gold contract was quoted at Rs 123,913, reflecting a slight decline of 0.22%, mainly due to a strengthening Indian Rupee driven by the Reserve Bank of India’s interventions and ongoing discussions regarding Fed rate cuts.
The previous week concluded with gold prices facing downward pressure from a favorable US nonfarm payroll report, which ultimately resulted in a 0.46% weekly decline, settling at $4,065. However, renewed optimism surrounding the possibility of a December rate cut emerged after comments from New York Fed President John Williams, who indicated an increasing likelihood of a reduction in rates amidst heightened concerns regarding the US job market.
Recent economic data provided insights into mixed performances across various sectors. The US composite Purchasing Managers’ Index (PMI) experienced a marginal uptick from 54.60 to 54.80, buoyed by stronger-than-expected service sector performance. While consumer sentiment, as per the University of Michigan’s index, remained record low at 51, inflation expectations for both one-year and five-to-ten-year horizons showed signs of easing. In contrast, the UK composite PMI suffered a decline from 52.2 to 50.5, while the Eurozone’s preliminary reading of 52.4 missed expectations, attributed to disappointing German data.
On the employment front, the latest US nonfarm payroll data revealed an increase of 119,000 jobs, substantially surpassing the forecast of 53,000. However, the unemployment rate ticked up to 4.44%, while average hourly earnings grew by 3.8% year-on-year.
In remarks made on November 24, Federal Reserve Governor Christopher Waller articulated a belief that current data does not indicate significant inflation pressures and highlighted the weaknesses in the labor market, reinforcing his advocacy for a December rate cut. This has accordingly heightened the probability of a rate cut to 71%, a dramatic rise from 24% just days prior.
In the realm of currency and yields, the US Dollar Index maintained stability around 100.15, while bond yields observed slight fluctuations. The two-year yield edged up to 3.53%, and the ten-year yield slightly decreased to 4.05%.
As of November 21, global ETF holdings for gold were recorded at 97.30 million ounces, showcasing a slight weekly decrease yet remaining near a three-year high. In contrast, the eligible COMEX inventory fell to 17.45 million ounces.
Looking ahead, market participants remain cautious as the Federal Reserve enters a blackout period starting November 29, limiting public commentary from officials until December 11.
Amidst ongoing geopolitical tensions, including the Russia-Ukraine conflict and Middle East strife, these factors continue to bolster interest in precious metals. The recent summit among European leaders on Ukraine highlighted the complexities surrounding agreements on military support and territorial integrity.
In terms of upcoming economic releases, key US data on retail sales, producer pricing, and consumer confidence will be closely monitored. The release of the October and November nonfarm payroll reports is scheduled for December 19, while a crucial budget presentation from UK Chancellor Rachel Reeves is expected on November 26.
For investors in gold, short-term price movement will largely hinge on developments around the anticipated Fed rate cuts, with a projected trading range established between $3,980 and $4,200. Current interim resistance is pegged at $4,125, and strong economic data could trigger a downward correction.
In the silver market, spot silver was noted around $50.50, a 1% increase for the day, although it experienced a loss of nearly 1% for the preceding week. Reflecting on market position, money managers have reduced their bullish stance, marking the least bullish positioning since August. Silver is expected to oscillate in response to shifts in Fed rate cut probabilities, with anticipated support levels around $49.30/$48.60 and resistance levels at $51.07/$52.37.
Overall, the fundamental factors at play suggest that both gold and silver markets will continue to be highly responsive to macroeconomic indicators and Fed policy speculations in the weeks to come.
