Gold Remains Lackluster as China`s Diminishing Inflation Dampens Investor Sentiment

Published on Jul 10, 2023 16:11

Gold remained lackluster as deflation concerns from world’s second largest consumer dampened the investor sentiment for bullion. Focus now turns to US CPI and PPI data due later this week.

China`s economy faces persistent deflationary pressures as both the Producer Price Index (PPI) and Consumer Price Index (CPI) indicate weak growth. The PPI declined by -5.4% YoY in June, marking the ninth consecutive drop and the sharpest decline since December 2015, surpassing the -4.6% YoY decrease in May. Meanwhile, the CPI showed no growth, remaining flat compared to a 0.2% annual gain in May. These trends highlight the ongoing challenges of deflation in China`s economy.

The dollar index rose 0.17% to 102.12 against a basket of currencies, bouncing back from dropping below 102 after weak non-farm payrolls data. US non-farm payrolls increased by 209k in June, with downward revisions of 110k to previous months. The softer jobs report is unlikely to affect expectations of an interest rate rise at the upcoming FOMC meeting on July 26.

International bullion for the front month contract was seen trading at $1928 an ounce down $4 or 0.21. The counter ended last week on flat note, closing up by 0.16%. Whereas the domestic counterpart ended the week up 1% at Rs 58782 per 10 grams. MCX Silver futures also ended the week up by nearly 2% tracking hefty gains in oil.

WGC in its report last week, showed that physically-backed gold exchange-traded funds (ETFs) saw net outflows in June 2023, halting the previous three-month inflow trend. The collective holdings of global gold ETFs declined by 56 tonnes ($3.7 billion), reaching 3,422 tonnes, with total assets under management (AUM) decreasing by 4% to $211 billion.

The report also revealed that given gold`s positive performance in H1, a severe investor unwind would be required for the average 2023 gold price to fall below its 2022 average of US$1,800/oz. On the other hand, if the risk of a recession increases, gold investment could see upside due to higher volatility and a preference for safe-haven assets during economic deterioration.