Spot gold closed with a gain of 0.59% at $2392 Friday as the metal rose on fresh concerns about the geopolitical situation following Israel’s attack on Iran. Israel reportedly struck back Iran on Friday morning in a low-scale drone operation. Although targets were Iran’s military sites, damage was limited. Iranian media downplayed the impact of Israeli strikes. Gold, which initially rallied sharply higher to $2417 on broadening conflict concerns, gave back all its gains; however, it rallied once again in the US session on weekend geopolitical risks.

The yellow metal was up 2.10% on the week as it posted its fifth consecutive weekly gain despite a firmer US Dollar Index and higher US yields. The ten-year US yields dipped one bps to 4.62% Friday; however, the yields were up around 2.50% on a weekly basis on hawkish Fedspeak amid encouraging macroeconomic US data. The US Dollar Index was up around 0.10% on the week as it edged lower by 0.05% to settle at 1.0612 on the last trading day of the week.

The yields have risen to fresh 2024 highs on diminishing odds of multiple rate cuts.

Data round up

The US retail sales advance (March) data were blowout numbers across the board as the headline retail sales rose 0.70% vs the forecast of 40%; prior data was revised higher to 0.90% from 0.60% reported earlier. Retail sales ex-auto were up 1.10% Vs the estimate of 0.50%. The control group surged 1.10% Vs the forecast of 0.40% as previous data was revised higher. Similarly, the weekly job report and Philadelphia Business Outlook data were better than expected; however, housing data trailed the forecast.

Hawkish Fedspeak

The US Federal Reserve Chair Powell, in a fireside chat about economic trends in North America at the Wilson Center’s Washington Forum in Washington, DC, on April 16, said that the US economy has performed quite strongly and recent data show a lack of progress on inflation. He added that if inflation does not come down, the Fed can hold rates as long as required.Federal Reserve Bank of Chicago President Austan Goolsbee said that it would make sense to wait to get more clarity on the inflation outlook before taking a policy step as progress on inflation has been installed. President Raphael Bostic anticipates U.S. inflation to return to 2% at a slower pace than many had anticipated. He added that the Fed will not be able to reduce rates before the end of the year. John Williams doesn’t feel an urgency to cut rates as the economy is strong, though a Fed rate hike is not his baseline. The Fed’s Mester said inflation is higher than expected and more confidence is required to ensure the trajectory of inflation.

Geopolitical watch

The US and the UK on Thursday imposed a new round of sanctions on Iran on concern that Tehran’s unprecedented attack on Israel could fuel a wider war in the Middle East.

Iran warned it may review its nuclear policies if Israel threatens it.

The Iranian Foreign Minister told the UN Security Council that Iran’s defense and countermeasures have concluded and Israel must be compelled to stop any further military adventurism against Iran’s interests.

Israel’s low-scale attack on Iran will keep the tensions smoldering, though there is a possibility of tensions remaining contained for the time being.

Investment demand remains lackluster

Total known global gold ETF holdings fell to 81.26MOz on April 18, which is lower on a weekly basis, too.

China’s demand

As per the World Gold Council, China’s wholesale demand fell in March, though investors continue to buy at high prices.

Data next week

Major US data next week include S&P Global US manufacturing PMI (April preliminary), S&P Global US services PMI (April preliminary), new home sales (March), durable goods orders (March preliminary), 1Q advance GDP, weekly job report, personal income and personal spending (March), PCE deflator (March), University of Michigan sentiment and inflation expectations (April final).

Out of Europe, the focus will be on UK manufacturing and services (April preliminary); Gfk consumer confidence (April); Euro-zone’s services and manufacturing PMI (April preliminary), IFO Business climate (April); and Germany’s manufacturing and services PMIs (April preliminary) and IFO business climate (April).

China’s PBoC will decide its 5-year and 1-year Loan prime rates.

Weekly outlook

Gold is unable to hold above $2400 as Dollar Index and the US yields are edging higher. Barring escalation of geopolitical tensions, gold is expected to correct lower, though overall outlook remains constructive.

Investors will closely watch the US PMIs, GDP and core PCE deflator inflation data to be released next week.

Support is at $2360/$2320/$2300/$2265. Resistance is at $2450/$2500.

(The authors is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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