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Economic data points including PMI, US GDP to decide gold price trend this week

Market participants are of the view that the US Fed might use the Jackson Hole symposium, in the summer, as a platform to announce its tapering actions

June 23, 2021 / 01:32 PM IST

Gold prices cracked hard last week, witnessing one of the worst weekly close since the Covid outbreak last year, with prices diving almost 6 percent on the back of the Federal Reserve's advanced timetable for rate hikes and tapering. Along with gold, other metals also suffered the impact of the market's knee-jerk reaction. The metal wrung from highs of $1,880 per troy ounce to lows of around $1,761.

On the other hand, silver marked a high of around $28.16 per troy ounce and low of around $25.96. Other than that, volatility in yields and dollars also weighed on the metal prices. Right after Governor Jerome Powell's announcement, US yields rose higher towards 1.6 percent levels although interestingly enough as the market settled with the announcement, we saw a drop in US 10-year below the 1.5 percent mark. Hence, supporting the metal prices at lower levels.

One of the biggest market moving event in 2021, i.e. the FOMC statement was released last week, where Governor Powell's revelation about the US economy and the current monetary policy supported the rally in dollar and led to the sell-off in the safe haven assets. The US Fed in its policy statement raised the GDP and inflation forecast and the time frame on when it will next raise interest rates.

The projection suggests that the inflation will rise to 3.4 percent this year, a percentage higher from March forecast. Fed governor raised bets for a tighter monetary policy after Fed projection showed two rate hike possibilities in 2023, which led to a spike in the dollar and weighing on the bullions.

Governor Powell mentioned that the forecast should be taken with a grain of salt as it's just a possibility and no such announcement has been made yet. The dot-plot plan suggests the possibility of two rate hikes before the end of 2023, which is almost 2 years from now, also there has been no changes announced in the $120 billion asset purchase as well. The central bank is looking for time to start scaling back the asset purchases it has been carrying out for the past year to support the economy from the impact of the pandemic.

Close

Market participants are of the view that the Fed might use the Jackson Hole symposium, in the summer, as a platform to announce its tapering actions.

On the other hand, Bank of Japan (BOJ) also had their policy meeting last week, they did not highlight the inflation much, although showed concerns regarding the impact of the pandemic. BOJ mentioned that it will not hesitate to ease monetary policy if needed, as the pandemic is still having a big impact on the economy.

It is also important to note that, stimulus package proposed by President Biden of $6 trillion is in discussion which whenever released could support the metal prices, with all this liquidity injections. The increasing debt is also a major concern for the economy, we have been getting updates regarding a meet between leaders of two power countries i.e. US and China soon, hence any update regarding the same will also trigger volatility in the market.

Investment in gold witnessed an outflow for the week ended June 20 and holdings currently stand at 1,041 tonnes compared to holding of 1,044 tonnes in the previous week.

On the other hand, silver holdings witnessed an outflow of around 57 tonnes and the holdings currently stand at around 17,843 tonnes.

Outlook

This week, the economic calendar has a few important lookouts, which could trigger volatility in the market. Preliminary manufacturing and service PMI data from major economies will be important to watch for. US GDP and Core PCE price index will be keenly eyed by market participants.

Comments from Governor Powell and Fed officials are also scheduled this week. Any fresh updates regarding the meeting between the leaders of the US and China will also be important. Dollar that has gained strength against its major crosses would be getting triggered from the above mentioned events.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Navneet Damani is the VP – Commodity Research at Motilal Oswal Financial Services.
first published: Jun 23, 2021 01:32 pm

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