Over view and Outlook

Yellow metal have shown steady decline in past few weeks as sharp rise in dollar index has pressurized the prices. Last month in July, gold prices registered their best monthly gain in four, helped by a weaker dollar and expectations that major global central banks are nearing a peak with interest rate hikes. The dollar index, meanwhile, posted its second straight monthly decline, making gold more attractive for other currency holders. Recent data showing signs of cooling inflation in the United States has raised expectations that the Federal Reserve was closer to ending its fastest rate hiking cycle since the 1980s. The Fed raised rates by a quarter of a percentage point in last week of July month and Chair Jerome Powell said inflation was yet to “credibly” return to its 2% target. Two European Central Bank policymakers raised the prospect of an end to the ECB’s steepest and longest string of interest rate rises, as the outlook for the euro zone economy worsened despite stubbornly high inflation.

In medium term yellow metal on domestic bourses is expected to take support near 56000-55500 range while facing resistance near 60000.

Factors impacting Gold

Gold demand patterns

Following a record-breaking start in Q1, central bank gold demand slowed significantly in Q2: global net purchases totalled 103t between April and June (-64% q/q, -35% y/y). But this has done little to diminish the strong overall central bank buying so far in 2023: H1 demand of 387t is he highest in our data series back to 2000. Turkey’s gold reserves have fallen by a net 102t y-t-d, while seven other central banks reported declines in their reserves at the end of H1. US investors continued to show a very strong appetite for gold bars and coins in Q2, with demand rising to a 13-year high of 32.2t. This took H1 demand to 65t – the strongest half-yearly total since 2008 and the highest for a first half in our entire data series.

Jewellery demand proves resilient in the face of high gold prices

In the context of the very high gold price environment, Jewellery demand has been remarkably resilient so far this year. China’s recovery from the severe 2022 consumption drought goes some way towards explaining this buoyancy, as does the investment motive that helps to drive purchases in high-carat markets including Turkey and India.

 FOMC minutes of July meeting

Federal Reserve officials were divided over the need for more interest rate hikes at the U.S. central bank’s July 25-26 meeting, with “some participants” citing the risks to the economy of pushing rates too far even as “most” policymakers continued to prioritize the battle against inflation. In general, the minutes said, Fed policymakers agreed that the level of uncertainty remained high, and that future interest rate decisions would depend on the “totality” of data arriving in “coming months” to “help clarify the extent to which the disinflation process was continuing” – a possible indication of a more patient approach to any further rises in borrowing costs.

Movement of US dollar index

Dollar index have negative correlation with the yellow metal as dollar’s bounce in recently had weighed on gold. A stronger dollar can be a weight on commodities priced in the unit, making them more expensive to users of other currencies. Dollar index can bounce towards 106-107 there by keeping the yellow metal under pressure.

Weekly  Chart of Gold (COMEX)

Analysis

COMEX Gold prices have witnessed correction since the beginning August as it faced resistance near $1960-1970 range. The next support for the prices is near $1870-1850 zone and $1800 in medium term. COMEX Gold is below 10 and 20 day moving averages .Bounce back in dollar index has resulted in correction in yellow metal.

Weekly Chart of Gold  (MCX)

Analysis

MCX Gold prices have shown steady decline since the beginning August as it faced key resistance near 59900-60000 range .Meanwhile 56000-55500 is key support zone. Any bounce back in dollar index towards 106-107 can further pressurize the yellow metal.

Disclosure

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