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Gold rejects the lows and moves sideways

08 April 2022

Friday 8 April 2022

In this week's market report:
  • Gold under pressure
  • COVID zero in China continues
  • Gold vs inflation
  • RBA no longer patient
  • Gold over US$30,000 per ounce? These analysts think so
 
Dear Investor,

US dollar gold price [XAUUSD] Daily chart

Source: Trading View
(Click to enlarge)

Another sideways week: Au traded sideways again this week, down 0.39% to US$1,928 per ounce.

Gold under pressure: Managed money positioning has declined in gold for the fourth week in a row, and gold-backed exchange-traded funds (ETFs) saw a slight increase in outflows in the first week of April. Rising real yields in the US and falling crude prices have also added pressure to the gold price this week.

COVID zero in China continues: There are 71 million people in China either in lockdown or facing a lockdown. As discussed here, this is impacting both the demand for crude by about 200,000 barrels per day and putting pressure on the gold price.

Pallidum’s calmest week in months: All precious metals were lower this week. Platinum is under US$1,000 per ounce for the second consecutive week, and palladium is marginally lower, having had its calmest trading week in months. Bulls, muted moves ahead: Look for gold to nudge US$1,938 per ounce. Au’s moves look to be muted this week.

Bears, it’s not your week: Spot gold recently rejected the level of US$1,890 per ounce last week. Au will likely remain above US$1,900 into next week.

Australian dollar gold price pauses: The Australian dollar gold price is down 0.38% to US$2,579 per ounce. The Australian dollar is stable at 75.07 US cents.

RBA no longer patient: The language from the Reserve Bank of Australia (RBA) changed this week, with Governor Philip Lowe dropping the term ‘prepared to be patient’ from his statement. This is a signal that the RBA is preparing to raise rates for the first time in 11.5 years. The consensus is the first rate hike will commence in June this year.

Gold over US$30,000 per ounce? These analysts think so

The extreme view: Fund managers VanEck have put forward an unlikely view on the gold price, suggesting that with the geopolitical shift, there is extreme upside potential for gold.

The two fund managers behind the report, Natalia Gurushina and Eric Fine, noted that this is the first time economic sanctions have been placed on a ‘world power’. They also point out that this ‘new paradigm’ is hard to quantify and may see central banks diversify their holdings further, writing:  
The bottom line is that the upside for gold and Bitcoin is potentially dramatic. Specifically, the framework estimates gold prices of around US$31,000 per ounce and potential Bitcoin prices of around $1,300,000 per coin.
[…]
Something big has happened, and we are attempting to quantify its impact. China is watching and sees a U.S./Eurozone/Japan that has gone “nuclear” in its economic war with Russia. “Stories” about the future of money are interesting, but if one agrees that this is a potentially new paradigm, an attempt at quantification is needed.
Read more here.

Central bank net sales decline in February

According to data from the International Monetary Fund (IMF), the World Gold Council reports that net central bank gold reserves fell by 6 tonnes in February. This is the second consecutive month of an overall decline in sales, something the WGC notes hasn’t been seen since 2020. Turkey was a large buyer of gold, adding 25 tonnes that month.

Central bank net sales 2021–22

Gold vs inflation

Inflation has been running hot in the US for the past six months and is expected to persist for the next few months. Incrementum put together a spot gold versus inflation chart this week to show the relationship between the two over the years.

Gold compared to inflation year-on-year % change
Gold (left-hand side) vs US CPI (right-hand side)

Source: Incrementum
(Click to enlarge)

Inside our office this week…

Our 1kg ABC Bullion Gold Cast bar has been popular this week as investors look to take advantage of gold’s indecision.
Warm regards,
The ABC Bullion Team