The preliminary November S&P global US manufacturing PMI reading released on 23rd came in at 47.60 (forecast 50), while S&P global US Services PMI was at 46.10 forecasts 48). The factory activity contracted for the first time since mid-2020.
The services PMI reading showed the second-worst contraction since the first half of 2020 as high-interest rates and elevated inflation took a toll. These two readings have helped the metal.
Gold rallied from $1616, the cycle low recorded on November 3, and ran into a wall of resistance at $1786.
Weakness persists in the US Dollar Index as it fell from its cycle high of 113.92 on October 13 to its cycle low of 105.34 on November 15 on market participants adjusting to the slower rate hike path of the US Federal Reserve.
Gold closed the week ended on November 27 with a gain of 0.15%, which is not much given the fact that the US Dollar Index slid around 0.95% to 105.97, while the 10-year US yields were down nearly 3% to 3.69% on the week.
Gold eked out only minuscule gain as outside markets were under pressure. Brent crude oil tumbled 4.50% on demand concerns emanating from China’s surging Covid cases and the West’s attempt to cap the Russian oil prices.
Next week, starting November 28, traders will look forward to Black Friday (November 25) and Cyber Monday sales figures.
In addition, the next week is a crucial week as we have a host of market-moving data like US real personal spending (October), PCE core deflator (October), ISM manufacturing PMI (November), and monthly Nonfarm payroll job report (November).
The narrative of buying on Federal Reserve going for a slower rate hike has been somewhat overdone as Core CPI inflation at 6.3% y-o-y is way above the Fed’s target level of just above 2%.
Durable goods orders, retail sales (October reading was the highest increase in eight months) and the job market remain robust. The Fed intends to take terminal rates higher (5% or above) than what it intended earlier.
The Central Bank is shrinking its Balance sheet, too. In this scenario, it won’t be surprising to see markets repricing the US rate movements in case the next week’s data don’t betray any weakness. Developments in the cryptos space will matter to some extent.
Gold will find it difficult to breach $1785 resistance next week. The support zone of $1720-$1730 could be tested once again; however, $1700 level is expected to hold as the traders will look forward to the US CPI data to be released on December 13 and US FOMC policy decision due on December 14.
(The author is AVP, Fundamental currencies, and Commodities analyst at Sharekhan by )