Iran-Israel conflict, US data to decide whether gold prices hit pause or reach new highs next week

By Kaynat Chainwala, senior manager- commodity research at Kotak Securities

It would not be an exaggeration to say that market dynamics have been increasingly erratic last week ended April 12.

Strongest indications by the European Central Bank that it will start unwinding its unprecedented hiking campaign soon coupled with delayed prospects of Fed rate cuts bolstered dollar and US 10-year treasury yields to five month highs of 106.1 and 4.58 percent respectively. US inflation data turned out mixed as CPI rose 0.4 percent m-o-m in March beating estimates, while PPI was up 0.2 percent m-o-m in March (versus 0.3 percent in February). Hotter CPI figures killed hopes of a June rate cut, pushing Fed pivot wagers to 2H 2024 (second half of 2024). This coupled with elevated tensions in the Middle East and Ukraine led to sell-off on Wall Street.

FOMC March meeting minutes showed that the Fed does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. Federal Reserve Bank of Atlanta President Raphael Bostic reiterated his expectation for one interest-rate cut this year, but added he’s open to change in outlook should the economic picture change.

Interestingly, even stronger greenback and hardening US treasury yields amid stubborn US inflation could not take the shine off gold prices. Gold has achieved a remarkable feat and advanced 18 percent so far this year, extending gains after 13 percent upside seen in 2023. China’s central bank purchased gold for a 17th straight month in March, extending a buying spree, which is one of the primary reasons for this relentless rally.

COMEX Gold hit a fresh all-time high of $2448.8 per troy ounce on Friday, witnessing a fourth consecutive weekly gain, fuelled by an escalation in the geopolitical situation. However, prices could not sustain above $2400 per troy ounce and gave up all the gains before closing at $2360 per troy ounce, trimming weekly gains to just 0.5 percent.

MCX Gold (Jun), on the daily chart, has formed a ‘Shooting Star’ candlestick pattern indicating indecision in price. In addition, RSI (relative strength index – 14) is hovering around 89.93 levels affirming that the counter is in its overbought zone. If the price sustains below Rs 71,800 per 10 gram, it can test its next support placed at Rs 70,400.

LME base metals continued to benefit from supply tightness concerns. LME Copper surged to its highest since May 2022 as China’s copper treatment charge plummeted to its lowest in more than five years. Zinc witnessed accelerated weekly gains of 8 percent yet again to hit a year high of $2863 per tonne, as China enters the strongest season for steel demand and output (April – May).

On the other hand, WTI Crude swung between gains and losses last week as markets assessed reports of Israel preparing for a revenge assault from Iran against a bearish US inventory report and cautious demand outlook by the International Energy Agency. IEA cut 2024 oil-demand growth forecast to 1.2 million bpd (barrels per day) from previously 1.3 million bpd, and said the pace of expansion is set to further decelerate in 2025.

Now, the Iran-Israel conflict will grab the headlines as it escalates risks of a broader regional war. Next week, US retail sales, industrial production, and speeches from FOMC members will be watched as recent US data has trimmed the possibility of a July rate cut to just 43.5 percent.

Chinese data will also be in focus especially since the latest inflation and trade figures highlighted demand challenges and renewed concerns over economic recovery.

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