Category: Market News

Gold can overcome near-term headwinds

Sirhc

Source: UBS CIO Daily Updates

by Chief Investment Office08 Jun 20233 min read

Thought of the day

The price of gold has remained under pressure following the stronger US employment report supporting expectations that the Federal Reserve will “skip” rather than ending hikes at its policy meeting next week. The potential for higher rates over coming months, after evidence of stubbornly high inflation, raises the opportunity cost of holding the precious metal, which generally doesn’t provide a yield. In addition, sentiment on gold was also undermined by International Monetary Fund data showing official gold reserves declined by 71 metric tons in April, which was the first net decrease in over a year.

As a result, gold has now fallen more than 5% from its recent peak in early May, when investors were more confident that the Fed had already finished its rate-hiking cycle. In our view, a further slide in gold to around USD 1,870 an ounce is possible (from USD 1,945 at present), as markets push back expectations for the start of rate cuts from the Fed.

But we still see potential gains for gold over the coming year, and we view the precious metal as a valuable hedge in portfolios.

Fed policy and the prospect of dollar weakness still supports gold. While the Fed is on a more hawkish trajectory than had been thought in early May, an imminent end to rate hikes still looks likely. In addition, the Fed is closer to starting a cutting cycle than its peers, including the European Central Bank (ECB). We also expect the Bank of Japan (BoJ) to back away from its ultra-easy monetary policy stance, relaxing its targets for government bond yields. This combination can be expected to weaken the US dollar, making gold less expensive for investors holding other currencies. Gold has historically performed well when the US dollar softens due to their strong negative correlation, and we see another round of dollar weakness over the next 6–12 months.

Central bank demand for gold should remain healthy, despite the recent decline. The decline in official holdings reported by the IMF does not reflect a reduction in enthusiasm for gold among central bankers, in our view. The Turkish central bank was reported as the major seller, but the World Gold Council believes these sales were due to local dynamics rather than a change in the central bank’s long-term strategy.

The longer-term trend suggests no reduction in appetite for gold among central bankers. Last year marked the 13th consecutive year of net gold purchases by global central banks and the highest level of annual demand on record dating back to 1950. At 1,078 metric tons in 2022, central banks’ buying of gold more than doubled from 450 metric tons in 2021. Based on the 1Q23 data from the World Gold Council, central banks are on track to buy around 700 metric tons of gold this year, much higher than the average since 2010 of below 500 metric tons.

Geopolitical and economic uncertainty could boost demand for gold among both investors and central banks. Gold has long benefited from safe-haven inflows during periods of geopolitical strife. The intensifying rivalry between the US and China, along with tensions arising from Russia’s invasion of Ukraine, make further flare-ups more likely. In addition, gold’s relative performance versus the S&P 500 improves significantly during US recessions, based on data since the 1980s. While recent US economic data have been resilient, stubbornly high inflation raises the risk that the Fed will overshoot in tightening rates—especially if regional banks continue to cut back lending to ensure liquidity following recent deposit outflows.

So, we continue to see upside in gold over the coming year. We keep our forecast of USD 2,100/oz by year-end and USD 2,250/oz by mid-2024 unchanged.

Silver fell as optimism over Fed cutting interest rates this year faded

Sirhc

Source: Investing.com | Kedia Advisory | Commodities News 2023-05-11 03:46

Silver yesterday settled down by -0.99% at 76688 as optimism over the Federal Reserve cutting interest rates this year faded after the U.S. inflation report, triggering profit-taking among some investors. The headline inflation rate in the US unexpectedly declined to a 3-year low of 4.9% in April strengthening bets that the Federal Reserve may be over with the tightening cycle. The annual core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, ticked down to 5.5% in April 2023, as expected, from 5.6% in the prior month, amid a downtick in the cost of rent.

On the other hand, the inflation rate in the UK was at 10.1% last month, staying above 10% for the 7th consecutive month and remaining close to the 40-year high of 11.1% reported in October. As a result, UK policymakers are widely expected to raise interest rates by 25 basis points to 4.5% on Thursday and the market forecasts rates to rise further to around 4.8% later this year. New York Fed President John Williams said inflation remains too high and the central bank will raise rates again if necessary, adding he doesn’t expect inflation to return to the Fed’s 2 per cent goal until the next two years.

Technically market is under long liquidation as the market has witnessed a drop in open interest by -7.99% to settle at 18563 while prices are down -768 rupees, now Silver is getting support at 75928 and below same could see a test of 75168 levels, and resistance is now likely to be seen at 77784, a move above could see prices testing 78880.

Gold inches up on weaker dollar as investors focus on US inflation

Sirhc

Lower interest rate expectations from the Fed could cause the bullion to trend higher, analyst says

08 MAY 2023 – 07:46ASHITHA SHIVAPRASAD

Bengaluru — Gold prices edged up on Monday as the dollar eased, while investors awaited a key US inflation data due this week that could influence the Federal Reserve’s monetary policy stance.

Spot gold firmed 0.3% at $2,021.80 per ounce by 3.23am GMT (5.23am). US gold futures rose 0.2% at $2,028.20.

The dollar index dipped 0.1%, making bullion more attractive to overseas buyers.

The US consumer price index (CPI) data is due on Wednesday.

Any signs of inflation being subdued would hinder the greenback due to lower interest rate expectations from the Fed, which could cause gold to trend higher, said Tim Waterer, chief market analyst at KCM Trade.

Traders also keep a tab on the developments over the US banking sector and the US debt ceiling.

US Treasury secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a “constitutional crisis”.

Gold would be among the “prime beneficiaries” if there are further signs of weakness in the US economy and prices could move to $2,100 sooner rather than later, Waterer said.

Economic uncertainty and lower rates attract demand for zero-yielding bullion.

“We are constructive on precious metals going into May … We anticipate a trading range of $1,954-$2,080 per ounce for gold [in May],” Edward Meir, metals analyst at Marex, said in a note.

On the physical front, China held 66.76-million fine troy ounces of gold at end-April, up from 66.50-million ounces at end-March.

Spot silver was up 0.2% at $25.70 per ounce.

Platinum rose 0.2% at $1,061.36, and palladium gained 1.3% to $1,510.55.

“Platinum is regaining investors’ attention as fundamentals improve,” ANZ wrote in a note.

“SA mining challenges weigh on supply recovery this year, while demand is getting support from gold as well as substitution away from palladium.” 

Reuters

Central bank gold demand hits first-quarter record, investments surge on U.S. banking turmoil

Sirhc

PUBLISHED FRI, MAY 5 20237:29 AM EDT

Elliot Smith@ELLIOTSMITHCNBC

Demand for gold among central banks notched a first-quarter record high in the three months to the end of March as overall global demand painted an otherwise “mixed picture,” according to the World Gold Council.

Gold prices broke through the $2,000 per ounce barrier this week and are flirting with record highs as global economic uncertainty, a possible pause in Federal Reserve interest rate hikes and potential further trouble in the U.S. banking sector drive investors toward the precious metal.

The WGC’s quarterly Gold Demand Trends report, published Friday, showed demand (excluding over-the-counter) was down 13% in the first quarter from the same period last year, though base effects were in play as demand spiked that quarter as investors fled risky assets following Russia’s invasion of Ukraine.

Total gold demand, however, was up 1% from the first quarter of 2022 thanks to a recovery in the OTC market.

In the three months to the end of March, central banks added 228 tons to global reserves, the highest rate of purchases seen in a first quarter since the data series began in 2000, though a slower rate than in recent quarters.

Louise Street, senior market analyst at the World Gold Council, told CNBC on Thursday that this was a continuation of trends that saw central bank gold buying soar to an 11-year high in 2022.

“Top of the tree for gold in terms of why official sector institutions hold it is always things like its its role as a diversification asset, its long term store of value, but increasingly over the last two years, we’ve seen how the importance that they placed on its performance during times of crisis,” Street explained.

The WGC expects demand among central banks to moderate this year after 2022′s spike, though noted that where previous buying had been concentrated in developing markets, more developed financial centers were now increasing their demand.

The Monetary Authority of Singapore (MAS) was the largest single buyer over the quarter, adding 69 tons of gold to its reserves, which are now 45% higher than at the end of 2022.

The People’s Bank of China (PBoC) added 58 tons over the quarter and now holds 2,068 tons of gold in its reserves, 4% of total reported gold reserves globally. Turkey was again a big buyer, increasing its reserves by 30 tons, while India’s central bank added a modest 7 tons.

Chinese consumers bought 198 tons of gold jewelry over the quarter, 41% of the global total, with demand resurging upon the removal of zero-Covid measures, though high and volatile prices dented demand in India, which saw the weakest first quarter for three years. Overall, jewelry was relatively flat in the first quarter, with China offsetting the decline in India.

Banking turmoil triggers investment surge

On the investment front, Street told CNBC that the WGC saw a noticeable spike in gold demand in March after the collapse of Silicon Valley Bank, the first of what has become a series of failures in the U.S. banking system among regional institutions exposed by higher interest rates.

Economists this week told CNBC that further pain could be expected after the latest crisis, an emergency rescue of First Republic Bank by JPMorgan Chase last weekend.

Significant gold-backed ETF inflows in March, driven by the fears of systemic risk in the U.S. economy, partially offset outflows over the first two months of the year.

Bar and coin demand strengthened by 5% year-on-year to 302 tons, though there were notable shifts in key markets, with U.S. demand hitting its highest quarterly level since 2010 on the back of recession fears and a flight to safety amid the banking turmoil.

By contrast, demand in Europe weakened with Germany in particular seeing a 73% fall in demand, which the WGC attributed to real interest rates turning positive and the rise in the euro gold price, which triggered profit-taking among investors.

However, Street revealed that the WGC is seeing continued inflows in North America at the beginning of the second quarter, which are now extending to Europe.

“Within the environment of high and rising gold prices, the mini banking crisis that we saw in March, continued high inflation and concerns around global economic recovery, that had a different impact on various different sectors of demand and different geographies,” Street said.

“And that’s all combined to kind of create this mixed picture, and it’s something we talk about quite a lot in relation to gold is just that sort of diversity of its sources of demand does mean they tend to react in different ways for different things, and that’s what helps obviously to make it such a good strategic diversification asset.”

Total gold supply increased by 1% year-on-year, driven by a first-quarter record high in mine production of 856 tons and higher recycling of 310 tons.

Source: CNBC

India raises silver import duty to align with gold

Sirhc

Source: Yahoo Finance Wed, 1 February 2023 at 2:22 am GMT-6·1-min read

MUMBAI (Reuters) – India raised total taxes on silver imports 15% and on silver dore to 14.35%, the government said in a statement on Wednesday, in an effort to align the duty structure of the metal with gold.

The south Asian country is the world’s biggest importer of silver.

“I also propose to increase the import duty on silver dore, bars and articles to align them with that on gold and platinum,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in parliament.

India raised its import duty on gold in July 2022.

The basic customs duty on silver was raised to 10% from 7.5% and Agriculture Infrastructure and Development Cess (AIDC) on the imports to 5% from 2.5%.

Silver dore will carry a 10% basic import duty and 4.35% AIDC.

Local silver prices jumped by up to 2% after the duty changes.

The import duty on articles made of precious metals was increased to 25% from 22%.

Read More…

Gold Price Forecast: XAU/USD jumps above $1,920 after US data

Sirhc

Source: FXSTREET NEWS | 1/31/2023 3:05:16 PM GMT | By Matías Salord

  • US Dollar weakens following Q4 US Employment Cost Index.
  • Data points to more evidence of a slow down in inflation.
  • XAU/USD erases daily losses with a rebound of more than $10.

Gold prices bounced sharply higher following the release of US labor costs data for the fourth quarter. More evidence of a slowdown in inflation pushed US yields to the downside and Wall Street to the upside, weakening the greenback.

The Employment Cost Index (ECI) rose 1% in the fourth quarter, below the 1.1% of market consensus and marked the third consecutive slowdown. Still the index is up by 4% compared to a year ago. The evidence of an improvement in the inflation outlook boosted US yields ahead of Wednesday’s FOMC decision.

Still the numbers are high, suggesting that inflation is still not consistent with Fed’s target. “Even as supply chain pressures ease, commodity prices cool and housing costs temper, we think the FOMC still wants to see a bit more slowing in wage growth before the Committee feels confident inflation is firmly headed to 2% over the medium term”, said analysts at Wells Fargo.

The greenback tumbled after the report and also did Treasuries, boosting gold. Also equity and crude oil price rose. XAU/USD erased all losses and it is hovering around daily highs at $1,927.

Read More:

MARKET SPOTLIGHT
‘Tables turning’ in global currency markets may lead to further gains for gold

Sirhc

Source: Heraeus Precious Appraisal

Precious metals prices rose in the final weeks of 2022 as the dollar began
to weaken. Despite a boost from the heightened geopolitical uncertainty in
Q1’22 and higher inflation than for several decades, by the end of 2022
the gold price in dollar terms finished near to where it began last January
($1,810/oz vs. $1,825/oz). In Europe, the euro gold price gained 6% on
the year owing to a 6% depreciation of the EURUSD pair.
Monetary policy divergence could lead to further dollar depreciation. With
inflation still high, the ECB President vowed in December to raise interest
rates by 50 bp in February, with a further 50 bp possibly coming hot on its
heels in March. This would add to the 250 bp cumulative hikes since July.
Some forecasts predict the ECB could take the Bloc’s deposit facility to
3.5% (currently 2.0%) by H2’23, implying a total of 150 bp in additional
hikes this year. Taking the Fed’s December median (dot plot) projection of
5.25% for the Federal Funds Rate by the end of 2023, further implied hikes
in the US amount to 75 bp. The potential variance in monetary policies by
the second half of the year could lead to the dollar weakening further.

Read More…

Inflation Hedging in Strategic Asset Allocations: Gold or Something Else?

Sirhc

Source: By Roberto Croce, Head of Risk Parity and Alternative Risk Premia, Newton Investment Management North America LLC.

INTRODUCTION

Inflation hedging is of particular interest to investors today, as recent consumer price inflation numbers show inflation rising faster and higher than at any time since the global financial crisis more than a decade ago. In this paper we answer the following questions:

Question 1. Does inflation only matter to investors with liabilities denominated in real dollars?

Answer 1. No. We find that the hedge/no hedge decision does not depend on whether investor liabilities are denominated in real or nominal US dollars. In this paper we will show that high inflation periods are almost as bad on a nominal basis as they are in real terms, particularly when the cash return is zero.

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Gold and Silver unlikely to outperform in the coming months – HSBC

Sirhc

Source: 12/30/2022 2:04:35 PM GMT | By FXStreet Insights Team

Strategists at HSBC remain neutral on Gold and Silver as they see muted momentum.

Higher rates and real bond yields create a competitive disadvantage for Gold

“Despite the recent bounce in commodity prices, we do not expect Gold and Silver to outperform in the coming months.”

“USD’s recent strength has weighed on metals, while higher rates and real bond yields create a competitive disadvantage for Gold compared to cash and bonds.” 

See – Gold Price Forecast: XAU/USD to rebound slightly next year as Fed easing starts – ING