Gold Price Falls Again After China's Underwhelming Stimulus, Analysts Share Key Levels

Gold price, hammered following Donald Trump's victory in the US presidential election, fell again on Friday after China's $1.4-trillion fiscal stimulus was not seen as enough to mark an economic turnaround.

Spot gold had shed more than $100 an ounce in the two days following Trump's win, and Indian gold futures lost over Rs 3,000 per 10 grammes in the same period. However, the rates marginally recovered late on Nov. 7, as the US Federal Reserve slashed the interest rates by 25 basis points.

"Gold prices have slipped again today following a brief recovery after the Fed's 25-basis-point rate cut, with market sentiment dampened by China’s lower-than-anticipated stimulus package," said Riyank Arora, technical analyst at Mehta Equities Ltd. "The limited economic support from China has heightened concerns about demand recovery, putting renewed pressure on gold."

Following China's stimulus announcement, spot gold plunged 1% to hit a low of $2,680 an ounce, whereas the US gold futures slid by 0.7% to a low of $2,687.3 on the Comex.

Indian gold futures also edged lower, with the December contracts on the Multi Commodity Exchange declining by 0.5% to Rs 77,025 per 10 grammes.

In the retail market, gold rate stood at Rs 77,382, down by around Rs 100 as compared to the price prevailing in the morning trade, according to the rate card shared by the India Bullion and Jewellers Association Ltd.

Technically, gold finds support around the Rs 76,900 per 10-gramme level on the MCX, Arora said.

"As long as this level holds, prices may recover towards Rs 77,600 and Rs 77,800. However, a breach below Rs 76,900 could signal a continuation of the downtrend in the near term," the analyst noted.

For spot gold, the short-term target remains around $2,600 per ounce, said Anindya Banerjee, head of commodity and currency at Kotak Securities Ltd.

"The primary challenge for gold remains the dollar's resurgence. In recent weeks, Trump's rising odds in the US election, culminating in a sweeping lead across polls, have driven the expected Fed funds terminal rate up by nearly 100 basis points—from 3% to almost 4%—implying more modest rate cuts ahead," he said. "The Fed itself yesterday hinted at a slower pace of cuts, further enhancing the dollar's appeal as US Treasury yields climb."

Additionally, underwhelming stimulus measures from China fell short of market expectations, offering little support to bullion prices, Banerjee noted.

"In the near term, gold prices may face continued downward pressure as capital rotates from gold to dollar-denominated assets, such as short-duration bonds and US equities," he said.

China's National People's Congress approved a 10 trillion yuan, or $1.4 trillion programme, to refinance local government debt. The announcement comes a couple of days after the US presidential poll victory of Trump, who has promised tariffs up to 60% on Chinese imports.

According to analysts, gold prices globally could have advanced if China's fiscal stimulus was to be seen as strong enough to spur local demand. Since China is the world's largest gold buyer, an uptick in the Chinese economy would have augured well for the metal's prices, they said.

"The announcement to refinance local government debt was perceived as insufficient to address the country's economic slowdown," analysts at Kotak Securities Ltd. said in a note. The stimulus comes weeks after China posted a 4.3% GDP growth in the September quarter, prompting fears that it may miss the 5% growth target for 2024.

"Since China is an export driven economy, the expectation was of a stronger stimulus. The announcement is seen as disappointing for the Chinese stock markets. It will also affect gold prices as China is a top gold buyer," said Kranthi Bathini, director of WealthMills Securities Pvt.

"The dip in gold triggered by the weak stimulus announced by China is temporary. The metal's price will recover, and going ahead, the risk is only posed by a strengthening dollar," Bathini noted.