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Economic calendar can trigger volatility in gold but trend remains positive

A cautious approach is advisable as gold is expected to trade with a sideways to positive bias in the short to medium term.

April 28, 2021 / 06:31 PM IST

After a sluggish start in the previous week, gold managed to hold on to most of its gains made in the recent day and took advantage of the falling yields and volatile dollar. Spot prices for the metal nearly reached $1,800 an ounce.

The proposed tax laws, which will pay for a forthcoming plan to dramatically expand benefits for the American working class such as child care and paid leave, would concentrate on a sharp rise in tax on capital gains, which would mostly affect those earning more than $1 million a year. A major shift in the way assets are taxed has obvious ramifications for financial markets, and even if the consequences are difficult to parse or forecast in depth, the market's initial response to higher taxes is often a little negative.

Investors are also likely to recognise that the period between the proposal and the eventual portrayal of any tax hike would almost certainly be lengthy but, depending on when it is revealed, it may be a positive factor for safe- haven assets.

The Vaccination drive is going on in full swing. The US recently crossed 200 million doses administered, a revised target from 100 million in the first 100 days of President Joe Biden taking office.

The increase in the number of people getting vaccinated is definitely a speed bump for gold, though market participants prefer to focus on the rising cases all over the globe, which is increasing the fear quotient and distress in the market. India and many other countries have announced certain restrictive measures and are looking to re-impose further rules in order to reduce the spread of the virus.

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With rising cases and stricter restrictions, it cannot be ignored that with such an increase in cases, physical demand is also taking a hit. On the other hand, India’s gold import numbers have been going through the roof. March gold imports surged 471 percent to record 160T, according to World Gold Council (WGC). Falling prices and the wedding season have pushed up the demand for the metal. The Reserve Bank of India has also shown interest in increasing its gold reserve, though in a lockdown-like scenario, retail demand might see some restrictions.

Positive economic data like US factory activity, retail sales and weekly jobless claims data limit the gains for the metal, though lower 10-year yields and falling dollar index supported the metal.

Investment in gold ETF witnessed an inflow for the week ended April 25 and holdings stand at around 1,021 tonnes compared to holding of around 1,019 tonnes in the previous week. On other hand, silver ishares holdings witnessed an outflow of around 121 tonnes, with the holdings at around 17,724 tonnes.

Outlook

For the week, the economic calendar has some important lookouts which could trigger volatility in the market. On the data front, Q1 GDP data, Core PCE price index is expected from the US. Manufacturing numbers of Japan and China are important to watch for. Fed policy meet outcome would be known by late April 28. No changes in interest rates are expected, though comments regarding inflation, yields and liquidity measures will be important. Apart from that, any updates on the trade tussle between the US-China, volatility in the Dollar dnd US yields cannot be ignored. A cautious approach is advisable. We expect gold to trade with a sideways to positive bias in the short to medium term.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those 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: Apr 28, 2021 06:08 pm

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