Gold prices edged higher by 0.11% to settle at Rs 153,091, supported by easing expectations of a U.S. Federal Reserve rate hike later this year. Market sentiment showed signs of improvement following an interim peace agreement between the U.S. and Iran, which contributed to a reduction in geopolitical tensions and alleviated worries regarding inflation driven by energy prices. The agreement prolongs the current ceasefire and enables the reopening of the Strait of Hormuz, alleviating supply apprehensions in international energy markets.
Lower oil prices have subsequently diminished inflationary pressures, prompting traders to reevaluate the probability of a more stringent monetary policy in the United States. Economic data from the U.S. also bolstered gold. Housing starts experienced a notable decline of 15.4% in May, reaching an annualised rate of 1.177 million units. This marks the lowest level since May 2020 and falls considerably short of market expectations. The weaker housing data reinforced expectations that the Federal Reserve may adopt a more cautious approach. Market participants have decreased the likelihood of a December rate hike to 58%, a decline from nearly 70% previously, as attention continues to center on the forthcoming Federal Reserve policy decision led by Chair Kevin Warsh.
Physical gold demand exhibited varied trends among key consuming countries. In India, the demand for jewellery saw a modest improvement as lower prices stimulated purchases, despite the overall retail confidence continuing to be lacklustre. Chinese premiums have moderated, indicating a state of equilibrium in demand conditions. Meanwhile, global gold ETFs experienced net outflows of $2 billion in May, primarily influenced by trends in Asia and North America, although year-to-date inflows continue to show a robust positive trend. Central bank demand remains a significant factor in providing long-term support, as evidenced by a survey conducted by the World Gold Council, which indicates that 45% of reserve managers anticipate increasing their gold holdings in the coming year.
Technically, the market is experiencing short covering, as evidenced by a 0.84% decline in open interest alongside an increase in prices. Gold is maintaining its support level around Rs 152,445, with additional support identified at Rs 151,800. On the upside, resistance is observed at Rs 153,650, and a sustained move above this level could pave the way for a test of Rs 154,210.