Gold on MCX settled up 0.3% at 29030 snapping a 5-session losing skid rose after downbeat US economic data boosted speculation the Federal Reserve will raise interest rates today but refrain from further tightening until year’s end. Gold prices also got support from a near three-week low hit in the previous session, as Asian stocks fell on a report that U.S. President Donald Trump is being investigated for possible obstruction of justice.
Gold turned negative on Wednesday after the Federal Reserve increased interest rates but was less dovish than expected following a two-day meeting, and the dollar sharply pared its losses against a basket of major currencies.
It was the second time in three months that the Fed raised interest rates by a quarter percentage point, which was widely expected, and the U.S. central bank cited continued economic growth and job market strength. It also announced it would begin cutting its holdings of bonds and other securities this year.
Gold is highly sensitive to rising U.S. interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar.
Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice, the Washington Post reported on Wednesday, citing unidentified officials. While yesterday the Fed raised interest rates on Wednesday for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing U.S. economy and strengthening job market.
However, U.S. consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months, suggesting a softening in domestic demand that could limit the Fed’s ability to continue raising interest rates this year. Wall Street’s top banks brought forward their expectations for when they think the Fed will begin reducing its $4.5 trillion bond portfolio to as early September, and see balance sheet reduction as more of a priority than another interest rate rise.
From physical side India’s demand outlook, after last year’s demonetization move, gold appetites are finally returning to India. Gold imports in May surged to 103 tons, which is four times the imports recorded in the same month last year. Jewelers in India are most likely building up their gold inventories, fearing a higher GST rate in coming months. Technically market is getting support at 28911 and below same could see a test of 28792 level, And resistance is now likely to be seen at 29118, a move above could see prices testing 29206.
* Gold trading range for the day is 28792-29206.
* Gold recovered from lows as support seen after data showed an unexpected month-on-month drop in U.S. consumer prices and retail sales.
* The Fed raised interest rates for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year.
* U.S. consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months, suggesting a softening in domestic demand.
We expect gold prices to trade negative on the back of FOMC statements.