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Focus shifts back to tariff war and geopolitics: AUGMONT BULLION REPORT
Gold saw a strong increase last week, jumping about 4% as the dollar fell following U.S. President Donald Trump’s warning to put 50% tariffs on European Union imports on July 9. This further shook the global economy and increased demand for safe-haven assets. Trump says he would impose 25% tariffs on Samsung and Apple devices.
The dollar saw its largest weekly percentage drop since early April last week, falling 2% and returning to 99 levels. The main issue affecting the dollar at the moment is the decline in trust in American policy. The Congressional Budget Office estimates the recently enacted US tax measure, which is now headed to the Senate, will cost close to $4 trillion, escalating concerns about long-term fiscal instability. These worries about growing deficits and growing debt servicing costs are highlighted by Moody’s recent lowering of the US credit rating.
The spending package is anticipated to be discussed by the US Senate and put to a vote before July 4 following the Memorial Day vacation on May 26. Markets may find it challenging to stage a consistent recovery if they continue to believe that the Senate will adopt the package with few modifications.
Since Moody’s lowered the US credit rating late last Friday, raising worries about the nation’s $36 trillion debt burden and Trump’s quest for tax cuts that may increase it by $4 trillion, investor sentiment has been brittle.
Meanwhile, Gold received a further lift from rising international tensions. Risk aversion was exploited by the precious metal due to the lack of progress in Ukraine-Russia talks and growing concerns of a worsening Middle East conflict following reports of Israel increasing its strikes on Gaza and preparing to target nuclear facilities in Iran.
Headlines of the US trade talks will be closely examined in the interim. Safe-haven flows may continue to control financial market activity and pave the way for another move higher in gold prices if the US is unable to advance negotiations with important trading partners like the EU and Japan. Furthermore, the precious metal may continue to benefit from a further escalation of Middle East hostilities.
Gold prices are expected to trade in the range of $3275 (~Rs 95000) and $3375(~Rs 96400) in the near term. Either side breakout or breakdown will give 2-3% movement. Silver is expected to continue its range-bound momentum from $32 (~Rs 94000) to $34(~Rs 98000) going forward.
| Metal | Expected Price Range (USD) | Approx. INR Equivalent | Notes |
|---|---|---|---|
| Gold | $3,275 – $3,375 | ₹95,000 – ₹96,400 | Breakout or breakdown may lead to a 2–3% move in either direction |
| Silver | $32 – $34 | ₹94,000 – ₹98,000 | Expected to remain range-bound in this zone for the near term |
- Around $3728 (~Rs 110,300) for gold futures and $43.23 (~Rs 129,7000) for silver, both markets were trading close to a record high ahead of the US FED’s two-day policy meeting that begins today.
- The Fed is expected to cut interest rates by 25 basis points on Wednesday, the first since December, and markets are almost certain that the easing cycle will continue into the following year. Recap: Despite the president’s dismissal, the federal appeals court permits Lisa Cook to remain as a Fed gov and take part in the FOMC meeting beginning tomorrow.
- For clues about the direction of future policy, all eyes will be on the Fed’s quarterly Summary of Economic Projections, which includes the much-awaited dot plot, and Chair Jerome Powell’s press conference. Regarding the data, reports on industrial production and retail sales that are anticipated later today will be closely examined to gain more understanding of how strong the economy is.
Technical Triggers
- Gold Dec Futures has given a breakout above $3700 (~Rs 110,000), the next target would be $3800 (~Rs 113,500). If prices top out and fall below $3650 (~Rs 108,500), then only we could see further profit booking.
- Silver Nov Future prices have given a breakout above its consolidation range of $41 (~Rs 123,000) and $42 (~Rs 126,000) for the past few days and achieved the target of $43. This rally has more room for upside towards $45 (~Rs 140,000)
Support and Resistance
| Commodity | Market | Support Level | Resistance Level |
|---|---|---|---|
| Gold | International | $3650/oz | $3800/oz |
| Indian | ₹108,500/10 gm | ₹113,500/10 gm | |
| Silver | International | $42.5/oz | $45/oz |
| Indian | ₹127,000/kg | ₹140,000/kg |
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