Daily Report – 12 July 2022

Fundamental Report: The Gold prices are edging lower on Monday amid a resumption of the U.S. Dollar’s rally. Gains are likely being dampened by a dip in U.S. Treasury yields. Both the dollar and Treasury bonds are getting support from some light safe-haven buying tied to weaker demand for riskier assets. At 08:20 GMT, August Comex gold prices are trading $1733, down $6.00 or -0.34%. The SPDR Gold Shares ETF (GLD) settled at $162.33, up $0.10 or +0.06%.Gold suffered heavy losses in the first half of the week and dropped to its weakest level since September 2021. The broad-based dollar strength amid growing recession fears and the worsening demand outlook for the yellow metal caused XAUUSD to close the fourth straight week in negative territory. In the absence of high-impact macroeconomic data releases, gold stayed relatively quiet at the start of the week and closed virtually unchanged on Monday. The Independence Day holiday in the US caused the market action to remain subdued throughout the day.

Today’s trade appears to be a little lackluster, but that can be understood with the U.S. scheduled to release it latest data on consumer inflation this Wednesday. This report follows last week’s dismal performance that produced a fourth straight loss. Gold finished near its late-September low, hurt by the strong dollar and increasing bets for steep interest rate hikes by several major central banks, especially the U.S. Federal Reserve. With American investors returning from the three-day weekend , safe-haven flows started to dominate markets and provided a boost to the safe-haven dollar. Reports suggesting that China could start imposing lockdowns in the face of rising coronavirus infections and the worsening global economic outlook weighed heavily on sentiment. International Monetary Fund (IMF) Managing Director Kristalina Georgieva told Reuters that the global economy has “darkened significantly” since April and noted that they couldn’t rule out a global recession next year given the elevated risks. India, the world’s second-biggest consumer of gold, announced that it has raised the basic import duty on the precious metal to 12.5% from 7.5%, further clouding gold’s demand outlook. In its Gold Mid-Year Outlook 2022, “we expect widespread economic slowdown to pressure consumer demand for gold, particularly with many markets seeing notably higher local gold prices,” said the World Gold Council. Assessing the Indian government’s action, “high local inflation, uncertainty about the economic outlook and the surprise increase of the import duty for gold – aimed in part to mitigate the impacts of rupee weakness – will likely weigh on the recovery of gold consumer demand,” the organization explained.

Meanwhile, the minutes of the FOMC’s June policy meeting revealed that participants concurred that high inflation warranted restrictive interest rates, with the possibility of a more restrictive stance’ if inflation persists. On Wednesday, the ISM Services PMI survey showed that the business activity in the service sector continued to expand at a robust pace in June but the Employment component dropped below 50, pointing to a contraction in service sector employment. Boosted by the Fed’s hawkish tone and the intense flight to safety, the US Dollar Index reached its highest level in nearly 20 years above 107.00, forcing XAUUSD to stay on the back foot. On Friday, the US Bureau of Labor Statistics (BLS) announced Nonfarm Payrolls rose by 372,000 in June, compared to the market expectation of 268,000. Annual wage inflation declined to 5.1% from 5.3% in the same period and the Labor Force Participation Rate edged lower to 62.2% from 62.3%. Although the dollar lost some strength after this report, gold failed to gain traction amid rising US Treasury bond yields.