Akshaya Tritiya to boost demand for gold: Navneet Damani of Motilal Oswal
Gold along with other commodities was able to ride the reflation trade higher for the majority of the last week, resulting in spot prices trading well above $1800 per troy ounce and at a 10-week high. Our regular market wrap appeared to be reviewing a fairly uneventful week in terms of market news and macro results, before April's Jobs Report, which revealed a historic disappointment for investors. Yields were already struggling a bit since the past few weeks, US 10-year was held below 1.6 percent all week.
After months of sluggish trading, gold prices exploded. Following the spectacular 9,16,000 jobs creation announced in March (revised to 7,70,000 in this report), many had expected another blockbuster NFP for last month, extending the theme of a runway economy, spiralling inflation, and the need for Federal Reserve tapering of the easy money that had fueled markets through the pandemic. Each piece of the jigsaw had its own trade setup, and the April NFP essentially ripped them all apart, forcing traders to reconsider what would happen in the months ahead if the COVID-19 effect on employment was more significant and stubborn than previously thought.
After the COVID outbreak last year, the Federal Reserve has held interest rates between 0 percent and 0.25 percent, with Governor Jerome Powell suggesting that recent price pressures were transient developments that will fade over time. Since the beginning of the year, market participants have sought to put pressure on the Fed to speed up their timetable for tapering bond purchases and gradually raising interest rates. But one thing is evident from the non-farm payroll and unemployment data: the Fed's ultra-accommodative monetary policy could be extended for a while longer, hence supporting the precious metal pack.
With economic data, Fed and US officials comments, it is also important to look at the rising cases and stricter rules and regulations that are being re-imposed in many countries especially on the domestic front. These restrictions are not only increasing the fear again in the market but also impacting the physical market sentiment. As compared to last year we surely don’t have a complete lockdown, although there are stricter restrictions and closed shops in few states. We have witnessed a major turnaround in the import numbers from last year to this year. And with Akshaya tritiya approaching later this week, demand either on the physical or in terms of ETF’s or other platforms is expected to increase, supporting the overall sentiment.
Investment in gold witnessed an inflow for the week ended May 9, 2021 and holdings currently stand at around 1,019 tonnes compared to holding of around 1,017 tonnes in the previous week. On other hand, silver ishares holdings witnessed an outflow of around 22 tonnes and the holdings currently stand at around 17,627 tonnes.
This week, the economic calendar has some important lookouts which could trigger volatility in the market. On the data front, inflation data, retail sales and industrial production number expected from major economies, which will further indicate the health of the respective economies. After the last week's economic data, few Fed officials are scheduled to speak this week, which will be an interesting insight for the investors.
There are expectations that US-China will meet soon regarding their Phase one deal, hence any update regarding the same will be important to watch for. Also, volatility in the Dollar and US yields cannot be ignored. It is advised to maintain a cautious approach, we expect gold to trade sideways with a positive bias for the next couple of weeks.
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