USD and Gold

Last week, we noticed heightened volatility across equity markets. After initial drawdowns, the latter half of the week (and yesterday) witnessed a clawback across markets. Overall, the NIFTY and the NIFTY Midcap were down ~2.5% in the last six trading sessions (including yesterday), while the S&P posted modest gains. However, the week witnessed a sell-off in Gold — Gold BeES was down 4.5% — primarily driven by strength in the US Dollar. Gold is predominantly priced in US Dollars.

Consequently, an increase in US Dollar rates will result in a lower value for USD-priced gold across global markets.

USD/INR rates in India counter this — an increase in the US Dollar vs INR will balance the rise in USD-priced gold. However, over the last two weeks, we’ve seen a dispersion between USD (vs global currencies) and USD (vs INR), which is pulling prices lower.

Jobs support continues

The UK announced a six-month job support scheme, while Democrats in the US proposed a 2.2 trillion relief package to continue direct payments to support the unemployed

The US proposed increases in wage-levels for H-1B visa holders, and announced a training programme to equip local talent—over the medium term, IT companies are likely to step-up local hiring and reduce translocating Indian employees

Walmart and other big e-commerce giants announced plans to recruit 1,000s of temporary staff for the upcoming holiday season

Isolated reports point to workforce shortages across industries owing to large-scale migration over the last few months

Consumer confidence continues to improve

Housing sales were up 34% during July-September, compared to the previous quarter — still nowhere close to pre-pandemic levels

Tractor sales were up 75% in August, on rural demand from a good Kharif season, and pent-up demand

56% increase in consumer spending since lockdown began, according to a survey by Standard Chartered — however, users are still cautious towards expenditures for leisure, travel and hospitality

Home-loan and auto-loan inquiry volumes are back to 2019 levels according to CIBIL — this could also be a result of pending transactions (from the previous quarter) or a result of consumers searching for lower interest rates

Stable business environment

It could take until September 2023 for India and the World to get back to pre-pandemic levels, according to McKinsey — several reports from brokerages and consulting firms continue to point towards an elongated recovery

Rail freight traffic reported 4% growth in August — discounts in freight-rates have increased railways’ share in the transport market to 40%, compared to lower than 30% earlier

Allocation changes

We believe the recent fall in gold prices offers an opportunity to enter gold — it’s already up 1.8% as we write this note. Consequently, this week, we may allocate ad-hoc to Gold ETFs.