By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all

As traders avoided opening sizable positions before the FED’s policy announcements, the
markets quietly started the week. In line with expectations following the July policy meeting,
the FED increased its target interest rate by 25 basis points to a range of 5.25–5.5 per cent. In
comparison to June, the US central bank changed the policy statement very little to not at all,
and the market showed no signs of it.

Chairman Jerome Powell said the policy was already stringent during the post-meeting press
conference and chose not to confirm another rate hike later in the year, which caused a sharp
drop in US Treasury bond yields. Following strong data releases from the US, the yield on the
10-year US Treasury bond spiked above 4%. The US GDP increased at an annual rate of 2.4
per cent in the second quarter, far outpacing the market’s forecast of 1.8 per cent growth.

The main focus this week is on crucial U.S. nonfarm payrolls data that is due on Friday and is
anticipated to provide additional insight into the robust labour market. Although the FED has
targeted some cooling in the labour market with interest rate increases, U.S. employment has
largely remained strong this year—a situation that could prompt the central bank to adopt a
hawkish stance.

In the near future, there is a two-way risk for precious metals. The price of precious metals
could rise if there is a sudden downturn in US data and expectations that the FED won’t
change its policy rate this year. On the other hand, if the US economy turns out to be resilient
and the labour market conditions remain tight due to a soft landing, in that case, Gold and
Silver may find it difficult to fend off the bearish pressure. The probability of a further rate
hike in November or December is likely to be more heavily discounted in the bullion market.

Gold is so far holding above crucial converged support, including the mid-July low of around
Rs 59000. A decisive break below the support could expose downside risks below Rs 58000.
On the upside, gold would need to clear the barrier in Rs 59700 for the one-month-long
rebound to extend.

 

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