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Gold supported as US Treasury yields dip

01 July 2022

Friday 1 July 2022
In this week's market report:
  • Fed remains on course for aggressive rate action
  • G7 ban Russian gold imports
  • Why provenance of precious metals matters

Dear Investor,

US dollar gold price [XAUUSD]

Source: Trading View
(Click to enlarge)
Gold supported as US Treasury yields dip: Spot gold is lower by 0.50% this week to US$1,811, resting on past support levels. The yellow metal has been largely forming a consolidation pattern over the past two weeks. While Federal Reserve Bank rate increases are putting pressure on gold, US Treasury yields dipped lower this week, providing some relief.

Fed remains on course for aggressive rate action: The Federal Reserve Bank remains committed to tackling the highest inflation in the US in 40 years. Markets are bracing for a 50-75 basis point increase at the July meeting later this month.

Downplaying recession fears: Fed officials are downplaying recession fears. San Francisco Fed President Mary Daly commented on this, saying:
‘Many are worried that the Fed might be acting too aggressively and maybe tip the economy into recession…I am myself worried that left unbridled, inflation would be a major constraint and threat to the US economy and continued expansion.’
‘I wouldn’t be surprised, and it’s actually in my forecast, that growth will slip below 2%, but it won’t actually pivot down into negative territory for a long period of time.’
Daly believes another 75 basis point increase in July is justified but did not confirm it.

Palladium lifts as Chinese PMI data turns positive: The Chinese purchasing managers index (PMI) rose to 50.2 in June, up from 49.6 in May. This is the first expansion since February and a signal the country’s manufacturing activity is increasing again. Bulls, gold builds a base: Spot gold looks to be consolidating and is building a base around past support levels of US$1,805-10. Breaking through US$1,854 would be positive, though unlikely this week.

Support is strong, Bears: Gold is resting on past support, but it could break below on this. Falling to US$1,791 is possible this week.

Gold in Australian dollars remains range bound: The Australian dollar gold price is largely range bound this week, though lower by 0.47% to AU$2,631. The muted falls have been buffered by greater falls in our local currency, with the Aussie dollar dipping by 0.98% to 68.74 US cents.

Have US bond yields peaked?

Have US bond yields peaked? This analyst seems to think so, claiming this peak brings the US closer to a recession, writing in the Washington Post:
“The current campaign by the Federal Reserve to raise its main policy interest rate -- the overnight federal funds rate -- in response to rapid inflation normally precipitates a business downturn. Since the central bank adopted this measure in 1954, there have been 11 recessions and only three exceptions, or soft landings — in 1966, 1984 and 1996. A soft landing occurs as the central bank lowers the funds rate after a series of increases with no recession unfolding. Until the Fed cuts rates, it’s uncertain as to whether its credit-tightening campaign is over or has merely paused.”

G7 ban Russian gold imports

Earlier in the week the G7 member countries (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States) announced this week they would ban Russian gold imports, with the Washington Post writing:
“President Biden and several of his counterparts in the Group of Seven nations on Sunday announced a ban on new imports of Russian gold — and appeared to be moving toward consensus on a price cap on Russian gas — to further isolate the country from financial markets and punish President Vladimir Putin for his invasion of Ukraine.
“The ban on gold imports, which could amount to a penalty of tens of billions of dollars, appeared to be the primary new economic sanction targeting Russia to come out of the summit. Administration officials declined to comment on whether other punitive steps would be taken.”
However, over here we discuss how this move may be largely symbolic. Due to gold’s portability, Russian gold may still ‘leak’ into G7 member countries.

Why provenance of precious metals matters

Further sanctions on Russian exports if a timely reminder that investors want clarity around the provenance of their precious metals.
Total control over the entire supply chain coupled with market leading environmentally aware refining technology is a rare commodity in the global precious metals market.
Pallion Provenance™ begins with the responsible sourcing of primary refining inputs from conflict free areas, right through to the processing of them into investment grade gold and silver bullion.

It’s why we say ABC Bullion products are the world’s most Considerate Precious Metals®. So, when our clients buy precious metal products from us, we can say with absolute certainty where that metal came from.

Warm regards,
The ABC Bullion Team