gold price today: Gold may come under pressure next week; crucial support at $2000

Spot gold closed the week ending on May 12 with a minor loss of 0.30% at $2010.88Investors look for signs of the US Federal Reserve pausing its rate hike cycle; however, as of now, the US data, particularly inflation data, remain inconclusive at best.For instance, the US CPI rose 4.90% on the year in April as against the forecast of 5%, while month-on-month (m-o-m) reading was 0.4%, which matched the estimate. Shelter Index, the largest contributor in the monthly rise, was up 0.40%.

Used cars, gasoline and truck indexes also rose. Core inflation readings at 0.40% and 5.50% on a m-o-m and year-on-year (YOY) basis respectively matched the economists’ forecasts. These readings are way above the Federal Reserve’s intended target of 2%.

Preliminary University of Michigan survey released Friday showed that the US consumers expect prices to rise 3.2% annualized over the next five to ten years, which is the highest level in the last twelve years.

One-year consumer inflation expectations at 4.50% topped the forecast of a rise of 4.40%, thus the report is supportive for the US Dollar.

The Bank of England went for a hawkish 25 bps hike in its monetary policy decision on May 11; however, the Dollar Index still chugged higher mainly on risk aversion.

The US debt ceiling impasse continues even as the US secretary Ms Yellen warned that if the US Congress fails to raise the debt limit, it may impair their credit rating. In the case of a failure, default on some obligations is possible.

The odds of Federal Reserve hiking rates in June are rising and have reached 10% following the release of the University of Michigan survey. Only a few days ago, the odds were seen at zero.

The US Dollar gained upward traction on elevated consumer inflation expectations. The Greenback is getting help from risk aversion as well due to disappointing data out of China and the US; US debt ceiling deadlock; and elevated treasury yields. China’s CPI inflation rose 0.10% year-on-year, which is the slowest pace of rise in two years, while the CPI fell 0.10% on the month.

The producer price Index fell for the seventh straight month as it fell at the fastest pace in the last three years. China’s inflation report shows that the major commodities consuming economy is yet to gather sustainable momentum.

The US weekly jobless claims are at the highest level in the last one and a half years. The US Dollar Index was up almost 1.50% on the week as it closed at 102.71. The ten-year US yields at 3.463% were up nearly 1%, while five-year US yields rose roughly 1%,too.

The Commodities complex came under intense pressure in the week. Silver tumbled over 6% on weakness in the industrial commodities.

Outlook:
Next week, investors’ focus will be on the US retail sales ( April), US industrial production (April), NAHB housing Market Index (May), US housing starts (April), initial jobless claims, Philadelphia Fed business outlook (May) and Leading Index (April).

The yellow metal appears to be drawing some support from the US debt ceiling issue, though it may not help the yellow metal much amid rising yields, stronger Dollar and generally weak undertone in the Commodities complex.

Gold has a crucial support at $2000 followed by $1969-$1977 region. Resistance is at $2020/$2050.

Gold may come under pressure next week. Weak US retail sales data may ease the pressure though.

(The author is Associate VP, Fundamental currencies and Commodities, Sharekhan by BNP Paribas)

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