Gold outlook: Analyst sees upside capped at $4,330 amid US-Iran uncertainty | Commodity News

Disclaimer: This article is written by Praveen Singh, Head of Commodities at Mirae Asset Sharekhan. Views expressed are his own. Readers’ discretion is advised.

Gold: Hormuz reopening hopes may support in very short term 

Spot gold has swung between $4235 and $4511 in September with a bearish bias. The yellow metal has come under strong selling pressure this month due to hawkish repricing of the Federal Reserve’s monetary policy trajectory on high energy prices that stoke inflationary pressures.

The yellow metal fell to $4244 on September 24 as yields and Dollar Index rose further, though it cut its losses on Reuters breaking the news that the strait of Hormuz could be reopened in a phased manner. At the time of writing this article on Thursday night, spot gold was trading with a daily loss of 0.2% at $4277.

Trump-Xi summit:

The leaders are expected to discuss crucial issues like AI, security, and technology. The Iran war, yet another flashpoint between these two countries, can also figure up in discussions as the US pushes for economic isolation of Iran. However, the visit is mostly about pomp rather than substance.

Xi urged the US and Iran to return to talks and hoped that the two countries would achieve peace.

Geopolitics and oil:

Consequently, oil prices halted the decline and eventually rallied sharply on renewed fears that the ongoing conflict would escalate, especially after a UK ship was hit in the Strait of Hormuz on Wednesday and Iran threatened to spread the war to other geographical locations, including the Indian Ocean.

Saudi Arabia’s oil exports have averaged 5.28 mbpd in September, the highest since the Iran war broke out. The nation earlier used the East-West pipeline to circumvent the closed Strait of Hormuz; however, as the flow through the pipeline came to a halt earlier this month due to a drone attack, Saudi Arabia bypassed the pipeline facility to increase exports through the Strait that helped it increase its oil exports.

The US is mulling a 90-day ban on diesel exports, though it could be moderated to voluntary restrictions. The diesel export ban may backfire as gasoline production may also be affected as refiners cut back on diesel production. In addition, such a step will worsen the existing global diesel shortage and hasten the second-round effects of high oil prices, which will further boost inflationary pressure.

At the time of writing, Brent oil futures were trading at $105.54, up over 2 per cent for the day. A decisive breach of $110 resistance can take the counter materially higher.

Data roundup:

US data released Thursday showed initial jobless claims fell from 198K to 197K (forecast 200k) as even continuing claims at 1719K came in well below the median estimate of 1740K.

S&P Global US manufacturing (September prel.) came in at 57– best since 2022 and comfortably beat the forecast of 53.70 (prior 53.90); services PMI rose to 58.70 — the quickest pace since 2021. Consequently, the Composite PMI rose to 58.4– fastest since July 2021. Employment surged the most in four years, though prices paid grew at the fastest pace since 2022, which amplifies inflationary pressure concerns. 

S&P Global Eurozone composite PMI surged from 52 in August to 53.1 (forecast 51.7) in September. Aided by volatility in Irish accounting, the Eurozone recorded a GDP growth of 0.6 per cent QoQ in Q2. The European central bank may hike rates yet again in December.

Fedspeak:

Richmond Fed President Barkin said the labour market is stable, but new job growth remains low. He added that inflation persistence was more evident this summer.

Fed Governor Barr called for more rate hikes as inflation is not progressing towards the Fed’s goal of 2 per cent in a timely manner.

NY Fed President Williams said another rate hike this year will be reasonable as more work is needed to tame inflation. Citing resilient US economy, he said the Iran war and AI investment pose lingering inflationary risks.

Fed speakers continue to maintain a hawkish tone post-FOMC decision.

US Dollar Index and yields:

Global bond market rout due to decent growth amid sharply higher oil prices has sent the yields on the long-dated government bonds to the highest since 2004. The average global yield on government bonds is within striking distance of the highest since 2007.

The 30-year US yields surged to 5.44 per cent, the highest since 2004.

At the time of writing this article on the night of September 24, the US Dollar Index was hovering around 101.15, up 0.10 per cent for the day and at the highest since July 29. The Index has surged nearly 2 per cent in September and has gained more than 3 per cent Y-T-D.

Two-year US yields spiked to 4.94 per cent — highest since May 2024 before easing to 4.88 per cent on Thursday on renewed optimism about the Strait of Hormuz reopening. Similarly, 10-year yields rocketed higher to 5.16 per cent — a fresh cycle high since 2007, before easing to 5.13 per cent as oil prices eased.

ETF and COMEX inventory:

As of September 23, total known global gold ETF holdings stood at 100.47 Moz as ETF flows continued to be encouraging despite further rate hike threats. Holdings are up ~48 tons YTD as inflows gathered pace after holdings hit the cycle low of 96.16 Moz on July 20. Since then, net inflows have amounted to ~134 tons; thus, gold holdings are down only 14 tons from the cycle peak of 100.92 Moz seen on February 28- just before the beginning of the Iran war.

Registered COMEX gold inventory at 15.18 MOz has risen nearly 31 tons from the cycle low of 14.19 Moz observed on August 7, though inventory remains 37.4 per cent lower from the record level of 24.25 Moz seen in April last year when the tariff war intensified due to Trump’s Liberation Day tariffs.

Upcoming data:

Major US data on the card in the near term include September final University of Michigan consumer sentiment and inflation expectations (September 25), September Conference Board Consumer confidence (September 29), August JOLTs job openings (September 29), September ADP employment change (September 30), August PCE Price Index (September 30), final reading of Q2 GDP (September 30), September ISM manufacturing (October 1) and September nonfarm payroll report (October 2).

Eurozone’s September final S&P manufacturing PMI September and CPI data will be out on October 1 and October 2, respectively.

Focus will be on the UK’s 2Q final GDP (September 30) and S&P manufacturing PMI (October 1), too.

China’s manufacturing and non-manufacturing PMIs for September will be released on September 30.

Gold price outlook:

Gold may not get much respite from intense selling pressure unless oil falls drastically, as the probability of an October rate hike has risen amid elevated oil prices. Implied overnight rates reflect a 66 per cent probability of a Fed rate hike at its upcoming FOMC meeting on October 28.

Hopes of reopening of the Hormuz have eased downside pressure on the metal to some extent; however, as talks between Iran and the US have broken down numerous times earlier, traders are likely to remain cautious.

Strong US economy is contributing to sharp rise in real yields, which means that unless oil prices fall significantly, yields will not ease much, which carries bearish implications for the yellow metal.

Spot gold has a crucial support in the $4185-$4200 zone, a decisive breach of which will bring $4000 in focus. Hormuz optimism can keep the metal supported in the very short term. Upside is likely to be limited to $4330 unless more clarity emerges on US-Iran talks over the reopening of the Strait. Next key resistance lies in the $4380-$4400 zone. Traders may buy the dips with a strict stop-loss below $4185 for short-term trading.