Spot gold declined for the second back to back month and dropped by 3.13% to $1,836.3 an ounce in May as investors weighed recession fears in the US and an easing of China’s virus outbreak that’s damping its haven appeal. In the US, concerns that aggressive rate hikes by the Federal Reserve will cause a recession have seen the greenback and Treasury yields rallying this month, hurting the non-interest bearing bullion. Latest euro-zone inflation data Tuesday also intensified the debate at the European Central Bank about how rapidly to raise interest rates.
MCX Gold August future ended with 1.75% losses at Rs. 50,847 per 10 gram. MCX Silver July future closed with a fall of more than 5% at Rs. 61,125 per kg. Holding at the world’s largest Gold ETF, SPDR Gold Trust hardly moved to 1,068.4 tonnes as on 31st May 2022 from 1,094 tonnes as on 30th April 2022.
Spot silver dropped by approx. 5.3% to around $21.54 an ounce in May, hitting the lowest since July 2020, as industrial demand declined sharply because of a forced lockdown in China. Moreover, investors remained concerned about soaring inflation and supply chain issues exacerbated by the Ukraine war, as well as a Covid outbreak in China that clouded the outlook further for global economic growth.
We continue to remain bearish in the bullion commodities. Gold may extend its downward momentum into June, may test the $1,810 – $1,825 an ounce region, as investors have been recalibrating the higher possibility of an aggressive pace of Fed tightening. Fed policymakers look poised to deliver a series of interest rate hikes this year to tame inflation, likely starting on with a 50bps on 15th June, and bringing rates up to around 3% by the end of the year. MCX Gold August may decline to Rs. 49,500 per 10 gram in June, but around those levels we may see a strong buying momentum. MCX Silver July is expected to rebound to Rs. 65,000 per kg owing to a short covering.
Best Regards
Jigar M Trivedi
Manager – Fundamental Research Analyst (NonAgro Commodities)