Gold regained some positive traction on the last week and recovered 1.5% from lows. The risk-averse market environment at the start of the week helped the precious metal find demand. The ongoing financial stress in China and heightened concerns over the US debt limit and Monetary tightening in India caused investors to seek refuge.
Financial stress in China property sector
Concerns over China’s leveraged property sector resurfaced after Fantasia Holdings, a mid-sized developer, failed to make a $206 million bond payment due on October 3, resulting in a legal default. A Chinese developer of luxury flats recently skipped payments to lenders worth $315 million, raising fears that financial stresses in the country’s inflated real estate sector are spreading beyond the struggling Evergrande conglomerate. This was interpreted as a major component that provided some support to the safe-haven precious metal, however, gains were limited by a number of considerations.
Temporary lift in US Debt ceiling
The U.S. Senate approved legislation on Thursday to temporarily raise the federal government’s $28.4 trillion debt limit and avoid the risk of a historic default this month, but put off until early December a decision on a longer-lasting remedy. In fact, the Senate voted 50-48 to extend the debt ceiling until early December. The bill will now be sent to the House of Representatives for approval before it can be sent to President Joe Biden for his signature. The development triggered a classic risk-on move in the global equity markets. Apart from this, prospects for an early policy tightening by the FED should hold traders from placing aggressive bullish bets around the non-yielding yellow metal.
Disappointing US Nonfarm payroll
Despite disappointing U.S. jobs statistics that complicated the Federal Reserve’s likely decision to begin reducing monetary support before the end of the year, gold pared gains amid rising Treasury yields. In September, the United States added fewer jobs than expected for the second month in a row, indicating continued weakness in the labour market recovery. After an upwardly revised 366,000 increases in August, nonfarm payrolls gained 194,000 last month. The nonfarm payrolls figures made it obvious that tapering isn’t essential right now since the labour market in the United States is “still tremendously weak.”
USDINR depreciation amid Monetary Tightening.
As an economic recovery takes root, India’s central bank stunned investors by pausing its version of quantitative easing, signalling the start of unwinding pandemic-era stimulus measures. The Monetary Policy Committee also opted to maintain the benchmark repurchase rate at an all-time low of 4%. As a result, the USDINR depreciated, supporting gold prices.
USDINR Daily Chart
Moreover, India’s Gold Imports Soar 11-Fold in Sept. Ahead of Festivals. Imports climbed to 93.5 tons from 8.4 tons a year earlier. This also supported positive sentiment in the Bullion market and will continue to do so in coming days. Gold has strong support at Rs 45500 and resistance at Rs 47000 for next week. If prices sustain above Rs 47000, the bull trend will start.
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