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Gold prices have continued to drift lower and tested a six-week trough amid concerns about the tightening monetary policy of the key central banks. The recent hawkish rhetoric of several Fed officials, stressing the need for price stability has led the markets to now price in a 75 bps rate hike at the Fed’s September meeting while weighing on gold prices. The dollar index advanced for the third week in a row and approached a fresh two-decade high of 109.97 which continued to keep gold prices under pressure. Annual inflation in the Eurozone rose to another record high of 9.1% in August, raising bets for an oversized rate hike by the ECB at their meeting next week.
Besides, the robust US manufacturing PMI reading for August further suppressed gold prices. As for the key data of the week, the US economy added 315,000 jobs in August, slightly more than the expectations of 300,000 additions, but less than the impressive job growth of 528,000 in July. The unemployment rate edged slightly higher to 3.7% as against the forecast of 3.5% which has now eased market nerves to a certain extent as that might push the US central bank to slow down the pace of rate hikes in the fourth quarter of the year.
Gold price outlook
If we look at the outlook ahead, gold prices in the international markets have been declining for the last six consecutive months. However, in their current down cycle, prices have tested levels close to the long-standing support at the $1680 per ounce mark, which is likely to lead to renewed buying interest at lower levels as the focus is now shifting towards a slowdown in economic growth. In the near term, prices may consolidate for a while, but they look to remain underpinned by the crucial support of ₹48,800 per 10 gm mark at the domestic markets. On the higher side, there can be a recovery towards ₹51,200 to ₹51,500 per 10 gm zone for the week ahead. On the other hand, in case of a decisive breach of the sacrosanct support of $1680 per ounce or ₹48,800 per 10 gm mark on a closing basis, we may see significant downside pressure in gold.
Gold price triggers for this week
As for the various factors that are going to play out next week, one should closely track the movement of the greenback. The dollar index is trading close to the 109.97 mark, a 20-year high, so if the greenback softens a bit, one can expect recovery to continue in gold while an upwards thrust in the dollar index would further act as a headwind for the precious metal. Apart from that, market participants would closely eye the OPEC+ meeting at the beginning of the next week. Any decision by the OPEC and allies to cut output might support oil prices, while if there is no production cut at a time when demand is weakening in China, we may see further pressure on oil prices while having implications on the inflation expectations.
The announcement of Britain’s new PM on Monday would also be on the market participants’ radar. The European Central Bank meeting would be another key highlight of the week ahead. With inflation rising for the ninth consecutive month in Europe, and the weak Euro aggravating the region’s problems, it has strengthened the case for a 75 bps rate hike by the ECB. A string of big hikes would further weaken growth at a time when the region is already facing a severe energy crisis and shall support gold prices in the long run. Besides, the focus would be on Eurozone and UK PMI data, the final S&P US services PMI, as well as the ISM services index lined up next week.
(Author is Vice President — Commodity & Currency Research at Religare Broking Ltd. Views expressed are completely personal and not of mint)
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(This story has not been checked by Kashmir Bulletin and is auto-generated from other sources)
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