Will a US recession drive gold higher?

In this week's market report:

• Gold rallies
• Fed sticks to the plan
• Silver tracks Dr Copper
• Crypto buyers flip to gold
• Russia’s grain ‘blockade’ risks further instability

Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

Source: Trading View
(Click to enlarge)

Gold rallies and finds support: Overall spot gold rose 2% this week to US$1,853 per ounce, with an intra-week high of US$1,869.68 on Tuesday. The yellow metal has since fallen back to the US$1,850s, which has been both a point of technical resistance and support for gold.

Fed sticks to the plan: The May Federal Reserve minutes contained no surprises, with more aggressive hikes off the table for now. 50-basis-point increases are expected from the Fed at the next couple of meetings.

• Higher short-term rates in the US and bond yields are putting pressure on gold.
• Investors are anticipating a recession in the US, which may provide support for gold in the coming months.
• The US dollar remains strong, crimping gains in the yellow metal.

China’s gold imports halve over April: Reuters reported that China’s gold imports dropped 59% last month, Hong Kong data shows, with net imports falling from 12.716 tonnes in March to 5.231 tonnes in April.

• The decline in gold buying is largely attributed to lockdowns in major Chinese cities.
• This trend is expected to reverse when lockdowns ease.

All precious metals rose this week: All precious metals rose this week. Pallidum’s trading remains subdued, and silver attempted to move above US$22.00 per ounce. Platinum remains under US$1,000 per ounce. 

• Silver is up 2.89% to US$22.01
• Platinum is up 1.93% to US$939
• Palladium is up 0.75% to US$2,004

Look for US$1,900, bulls: If gold holds above the US$1,850s, there’s scope for a run to US$1,898.

A swing down can’t be ruled out, bears: Spot gold firmly rejected anything below US$1,800, though it’s plausible gold will retest the US$1,820s level.

Australian dollar strengthens, muting local spot gold prices: The Australian dollar is up 2.21% this week to 71.05 US cents. This strong run in the Aussie dollar muted the Australian gold price, with XAUAUD down this week by 0.17% to AU$2,608.

Silver tracks Dr Copper

Silver — the ‘other’ precious metal — can either wear its gold hat or its economic hat. Since April, Ag has been tracking the copper price.

Silver (blue line) versus copper (white candlestick)
Daily/3 months

Source: Bloomberg; ABC Refinery

Crypto buyers flip to gold

Enduring wealth protection over speculative punt: A global study completed by Hall & Partners and the World Gold Council revealed the different attitudes that come with investing in cryptocurrencies and precious metals. Their findings reveal that of the people surveyed in 2021:

• 38% of people bought cryptos.
• 44% bought gold.

However, their data showed that crypto investors were aware of the downsides of the digital currency, viewing them as ‘high risk’ and a ‘purely speculative bet’.

That’s in contrast to the gold investors, who recognise gold’s wealth protection properties and consider it ‘a store of wealth’, a ‘safe investment I don’t have to worry about,’ and the ability to ‘protect against inflation’.

Russia’s grain ‘blockade’ risks further instability

Russia’s invasion of Ukraine risks morphing into a global humanitarian crisis. Some 22 million tonnes of grain are sitting in silos in Ukraine, but they are unable to be shipped through the Black Sea, with the Wall Street Journal writing:

‘Russia’s military is denying Ukrainians use of their own ports. Mariupol on the Sea of Azov has been destroyed and is now in Russian hands. Ukraine still holds Odessa, but Kremlin warships won’t let commercial ships into or out of that Black Sea port.
‘The consequences include shortages and higher food prices as prospects rise that Ukraine’s annual crop production won’t make it to world markets.
[…]
‘United Nations Secretary-General António Guterres has been trying to strike a deal to free up exports, and he visited Moscow in April to ask Mr. Putin to help.
[…]
‘If diplomacy doesn’t work, former Army Gen. Jack Keane suggests an international food and commercial escort operation may be needed, led by the U.S… The mission would be to form an international coalition of warships to escort commercial vessels safely out of Odessa and the Black Sea.’

Russia and Ukraine export wheat to 50 countries and combined account for 30% of the world’s wheat imports. As discussed over here at The Pod of Gold, food insecurity risks political instability.

Inside our office this week…

The strong Australian dollar rally has softened local gold prices, making it the optimal entry point for Australian investors.
Many of our clients this week took the opportunity to top up their ABC Bullion Pool Allocated accounts, as well as our ½ ounce ABC Bullion Gold Cast bars.

Before you go…

ABC Bullion is sponsoring the coffee cart at the Australian Gold Conference this year. If you’re attending, come and have a coffee and a chat.   

Warm regards,