Gold Price To Slip Or Recover With Release Of US Economic Data This Week? Experts Share Key Levels

The strengthening of US dollar and bond yields, following the presidential poll victory of Donald Trump, has led to a sharp downslide in the price of gold in the global and domestic markets.

Spot gold was trading 0.6% lower at $2,604 per ounce at 12:05 p.m. (GMT) on Tuesday. The metal has fallen by nearly $150 from $2,750 an ounce on Nov. 5, when the presidential election was held in the United States.

The Indian gold futures on the Multi Commodity Exchange have also plunged over the past week. The December contracts have shed more than Rs 4,200 as compared to the high of Rs 79,181 per 10 gram on Nov. 5. The futures were trading at Rs 74,940 per 10 gram at 5:30 p.m. (IST) on Tuesday.

This week, crucial economic data releases from the US—including consumer price index, producer price index, retail sales, and index of industrial production—are expected to shape the movement of the commodity market.

The CPI, which is a measure of retail inflation, will be released on Wednesday, followed by the PPI or wholesale inflation data on Thursday. The retail sales numbers and the index of industrial production will be disclosed on Friday.

The data assumes significance as a downtick in inflation and softening in economic output may compel the US Federal Reserve to accelerate its pace of interest rate cuts. The optimism over rate cuts will support the price of gold, which sees a jump in demand when lending rates decline.

Following the release of the economic data, the gold prices "may experience a temporary rebound, which could offer short-term traders a chance to sell at higher levels," said Rahul Kalantri, vice president for commodities at Mehta Equities Ltd.

"We recommend a 'sell on rise' strategy for those aiming to capitalise on short-term gains," he added.

A higher-than-expected inflation reading could reduce the likelihood of a rate cut in December and put additional downward pressure on gold prices, said Kaynat Chainwala, assistant vice president for commodities research at Kotak Securities Ltd. In this backdrop, "the key levels to watch for MCX gold rates are Rs 74,400 and Rs 77,400 per 10 gram," she said.

Federal Reserve Chair Jerome Powell, while addressing the press last week, neither ruled out nor confirmed a rate cut in December. This suggests that upcoming economic data will be crucial in shaping the Fed's decision, Chainwala said.

"As a result, gold prices are likely to remain under pressure this week with markets closely monitoring key US data releases," she added.

According to Kalantari, the overall trend for gold looks negative. For spot gold, "we are expecting potential declines to the $2,580 and $2,540 levels, while resistance is projected at around $2,655", he said.

In the Indian spot market, gold prices could reach Rs 75,100 per 10 gram, and sustaining below this level may open the path toward Rs 74,400, while resistance is expected at Rs 76,250, the analyst noted.

"Traders should keep an eye on geopolitical developments, as any escalation may push gold prices higher," he further said.

Trump's proposed policies, including tax cuts and trade tariffs, could prompt the Federal Reserve to hold off on additional rate cuts if inflationary pressures begin to reaccelerate, experts said.

"Already, markets have adjusted their expectations, now pricing in less than one percentage point of rate cuts by the end of next year. Rising inflation expectations, coupled with a growing fiscal deficit if these policies are implemented, suggest that US bond yields may remain elevated, which could weigh on non-yielding assets like gold," Chainwala said.

Among the US economic data releases this week, the markets will most closely track retail inflation. The core CPI, which excludes food and energy, is expected to remain steady both on a monthly and annual basis at 0.3% and 3.3%, respectively, compared to September's readings, Chainwala said. "The overall CPI is projected to increase by 2.6% year-over-year, slightly higher than September's 2.4% increase," she added.

Even as the commodity market shifts its focus to US economic data, the underwhelming fiscal stimulus announced by China will continue to weigh negatively on gold prices, suggested Manav Modi, senior analyst of commodity research at Motilal Oswal Financial Services Ltd.