Buying on dips likely to support Gold next week; resistance seen at $2010-2050

Spot gold closed with a loss of 0.20% on the week as the yellow metal closed at $2004.26. The US Dollar Index at 101.58 was nearly 0.45% lower, while US ten-year yields closed around 3.10% higher at 3.515%.

The yellow metal tumbled 1.74% Friday.

The University of Michigan’s one-year consumer inflation expectations served as a brutal reminder of the notion that ‘inflationary pressures will continue to decline could be misleading’.

The preliminary reading of one-year inflation expectations for April came in at 4.6% against the forecast of 3.70%. Earlier this week, the US CPI data were somewhat softer than expected.

The inflation report showed that headline data trailed the forecast. March CPI m-o-m came in at 0.1% against the forecast of 0.20%, whereas CPI y-o-y was noted at 5%, which fell short of the 5.1% estimate.

Core CPI MoM stood at 0.40%, while the YoY reading was 5.60%. Thus both the readings matched the forecast. While the headline figures were short of the forecast, core inflation data continued to be elevated.

In a similar vein, US PPI data for March showed that prices for final demand in the US fell 0.5% MoM in March, which is the biggest decline since April 2020.Markets cheered FOMC minutes for the March meeting, which showed that the Federal Reserve officials were concerned about the banking crisis and high inflation as they see the US economy undergoing a mild recession later this year, which implied peak rates could be lower.

Although advance headline retail sales data for March fell 1%, more than the forecast of a 0.50% decline, the ex-auto and gas retail sales data came in at -0.3%, which was better than expected data of a 0.60% decline.

US Treasury Yields surged on the latter data, which supported the US Dollar. Similarly, US industrial production data for March increased by 0.40%, beating the estimate of a 0.20% increase.

University of Michigan sentiment data for April was a tad better than expected. The University of Michigan’s one-year consumer inflation expectations data sent bullion sharply lower Friday.

Consumer inflation expectations rose on the rise in gasoline prices. Fuel prices jumped 14% in the last month. One-year gas price expectations have reached the highest level in six months.

The US Dollar was boosted further by hawkish comments of the Fed’s Wallet, which said that the US Fed hadn’t made much progress in inflation control and the rates needed to rise further. The banking results released Friday were decent.

Next week, the focus will be on US housing data, which includes housing starts, the Philadelphia Fed manufacturing index, S&P Global US services, and manufacturing flash PMIs.

It is to be noted that notwithstanding markets’ notions of a dovish Federal Reserve, the yields hardly moved lower in the week.

A major part of the bullion rally has come from dollar weakness. Countries talking of trade settlements in currencies other than the US Dollar have also contributed to the reinforcement of weak dollar sentiments.

Gold is likely to be on the defensive next week. A test of the support zone of $1975-$1980 is possible, a breach of which could expose the next support at $1950.

Dip-buying support is expected to cushion the decline as Dollar rebounds have proved to be fleeting recently. Resistance is $2010/$2030/$2050.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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