Gold prices continue to face downward pressure as inflation concerns persist amid escalating geopolitical tensions and rising crude oil prices, according to Praveen Singh, Head of Currencies and Commodities at Mirae Asset ShareKhan.
Gold Price Performance
On June 1, spot gold traded in a range of $4447 to $4546, exhibiting a bearish tilt. Weak-looking crude oil prices surged again due to escalating tensions between the United States and Iran, stoking rate hike concerns. At the time of writing, spot gold was trading with a daily loss of 1.32% at $4480.
In the week ending May 29, spot gold fluctuated between $4366 (May 28) and $4596 (May 29). It slumped to a two-month low of $4366 after the US struck Iranian targets for the second time that week. However, the metal recovered quickly to close higher for the week following news that the US and Iran had reached a preliminary deal or Memorandum of Understanding to extend the ceasefire by 60 days. On May 29, gold closed with a gain of 1% at $4540, up 0.68% for the week.
Geopolitics and Oil
Simmering tensions between the US and Iran erupted again on June 1, as the US military reported carrying out more strikes in Southern Iran over the weekend and intercepting an Iranian missile aimed at American forces in Kuwait. Iran's Islamic Revolutionary Guard Corps (IRGC) claimed it targeted a US military base from which attacks originated. Meanwhile, Israel expanded its war in Lebanon, a major thorny issue in US-Iran negotiations. The situation worsened on Monday when Iran's semi-official Tasnim news agency reported that Iran would halt talks with the US in protest over Israel's expanded ground assault in Lebanon.
Key sticking points in US-Iran negotiations include control of the Strait of Hormuz, release of Iran's frozen funds (initially $12 billion out of $24 billion), disposal of Iran's enriched uranium, and the Israel-Lebanon war. Brent crude oil front-month futures, which fell 20% in the week ending May 29 (marking the worst monthly fall since 2020), jumped over 6% on Monday due to escalating regional tensions.
China's Actions
On June 1, China stepped up its response to its rivalry with the US in technology by strengthening oversight of outbound investment. A new directive aims to improve reviews for overseas investments that could affect national security. New regulations, published Monday by China's Cabinet and effective July 1, prohibit investors from transferring restricted goods, technology, services, and data overseas without prior authorization, introducing financial penalties for offenders.
Gold ETF and COMEX Gold Inventory
Total known global gold ETF holdings fell for the second consecutive week in the week ending May 29, standing at 98.43 million ounces (MOz), down 0.52 MOz year-to-date (16.17 tons). Gold ETF holdings are currently down 2.49 MOz (77.43 tons) since the Iran war began on February 28. As of May 29, registered COMEX gold inventory stood at 15.51 MOz, the lowest since February 4, 2025. The registered inventory is down 36% from the record peak of 24.25 MOz seen in April 2025.
CFTC Positioning
According to the weekly CFTC data for COMEX gold futures and options for the week ending May 26, money managers increased their bullish gold bets by 2,543 net-long positions to 96,931. Long-only positions rose by 476 lots to 124,534, while short-only positions fell by 2,067 lots to 27,603 lots, the lowest in eight weeks.
Data Roundup
US ISM manufacturing data released on June 1 showed that manufacturing activity expanded in May at the fastest pace in four years, with new orders and production picking up. The ISM manufacturing index rose to 54 in May (estimate 53, prior 52.7), with nearly every manufacturing industry reporting growth. ISM prices remained elevated at 82.1 (prior 84.60, estimate 85), while the new orders index expanded more than forecast (56.80 vs. forecast of 54.50). However, the ISM employment index contracted for the thirty-second consecutive month.
China's manufacturing stagnated in May (50 vs. forecast of 50), though the composite PMI at 50.10 beat the forecast of 49.50 as non-manufacturing PMI unexpectedly expanded (50.10 vs. estimate of 49.50). The RatingDog manufacturing PMI at 51.80 topped the forecast of 51.30, showing expansion for the sixth straight month.
The S&P Global Eurozone manufacturing PMI came in at 51.60 (initial estimate 51.40) in its final reading for May. The UK's manufacturing PMI at 53.90 in its May final reading beat the forecast of 53.70.
US Dollar Index and Yields
The US Dollar Index edged higher on June 1 as US yields hardened. At the time of writing, the Dollar Index was hovering around 99.23, up 0.30% for the day. Two-year US yields surged 2% to 4.08%, while 10-year yields, up 1.5%, were knocking at the crucial psychological resistance of 4.50%.
Fed Rate Hike Probability
Implied overnight rates currently suggest 0.85 rate hikes by the year-end, compared to 0.57 rate hikes seen on May 29.
Upcoming Data
This week is crucial, with major US data including JOLTs job openings (June 2), May ADP employment change (June 3), ISM services index (June 3), and the May nonfarm payroll report (June 5). Non-farm payroll reports for March and April have been somewhat encouraging, alleviating job market concerns to an extent. Investors will also monitor Eurozone CPI (June 2) and Eurozone services and composite PMIs (June 3). Major Asian data in focus include China's RatingDog services and composite PMIs (June 3).
Gold Price Outlook
Elevated and surging oil prices continue to weigh on precious metals as inflation concerns keep the possibility of a rate hike by the year-end alive. Anemic ETF flows and huge volatility in gold prices deter investors as the Middle East situation remains highly uncertain. Strong equities performance has also dented the safe-haven appeal of gold. The yellow metal is expected to remain under pressure unless the US and Iran agree to formally extend the ceasefire. A breach of the stiff support in the $4400-$4406 zone will open the way to $4350. Major support is at the $4099 zone (March 23 low). Resistance is seen at $4600/$4670.
If the US and Iran formally agree to extend their ceasefire deal, it could lead to a sharp bounce in the metal; hence, risks and positions should be monitored accordingly.
Disclaimer: Recommendations and views on the stock market, other asset classes, or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India.
