Gold soars as Fed folds on inflation

In this week's market update:

• Gold prices traded above USD $2,200 and AUD $3,300 per troy ounce (oz) earlier this week, as a dovish US Federal Reserve fuelled the recent precious metal rally.

• Last trading at USD $2,180oz, gold has since eased from the intra-week high, though is still +1% over the past five trading days.

• Silver failed to follow gold higher this week, with the precious metal -1% in USD terms, last trading at USD $24.70oz, with the gold to silver ratio (GSR) rising to 88.

• Foreign exchange markets were again relatively calm, with the USD index rising by 1%, while equity markets rallied, with the S&P 500 +2% over the week. Bitcoin fell 7% and is back below USD $65,000.

• Fixed income markets were also calm, with yields on 10-year government bonds in both the United States and Australia still sitting above 4%.

How much higher for gold?
Gold prices briefly surged beyond USD $2,200 oz this week, as the US Federal Reserve reaffirmed expectations it will deliver at least three interest rate cuts in 2024, despite consumer price inflation rates that are failing to come down as fast as the central bank would like.

While gold has since given back some of those gains, the price action remains constructive, with investors adding to positions in this recent rally. That includes the more speculative end of the market, with managed money speculators increasing their long positioning by more than 70,000 contracts (or 70%) since late February.

In the same time period, managed money speculators that were short gold more than halved their positions since mid-February. The activity of these investors represents a more than USD $20bn change in the gold market, which combined with continued buying from retail investors and a return to inflows from gold ETFs, is largely responsible for the recent surge in bullion prices.

And while the speed of the recent price rally does leave gold susceptible to profit taking, the long-term outlook remains bullish, especially as the appetite for precious metals amongst the wider investment community remains lukewarm at best.

This was best summed up in a Financial Post article from March 21st that ran with the headline “Wow, nobody wants to buy us’: Investors exit as gold price surge”, with Shree Kargutkar of Sprott Asset Management noting that “the sentiment in this space has never been lower.”

If gold were indeed to top out at USD $2,200oz, it would be the first bull market to end with sentiment and financial market headlines of such nature.

More importantly, the case for holding gold in a diversified portfolio remains as strong as ever given the geopolitical and market environment all investors are navigating today, with Swiss Private Bank Lombard Odier releasing a update on the gold market this week which noted that they are maintaining their “strategic level of exposure to the precious metal in portfolios.”

Pod of Gold
My colleague Nicholas Frappell, Global Head of Institutional Relationships, appeared in a ‘Pod of Gold’ update on the 18th March.

The discussion focuses on a range of issues related to the gold market, including the latest movement interest rates, investor positioning and how that has evolved.
Price targets are also discussed, with the timestamps highlighted below.

Timestamps:

• 0:00 – Intro

• 0:49 – What is driving the gold price rally?

• 4:44 – Geopolitical events impacting gold

• 6:48 – Gold price targets

• 8:49 – Gold managed money positions

• 12:15 – Gold ETF data

• 18:30 – Has new support formed for gold?

• 20:59 – Key takeaways

As always, it is a must listen for those with a keen interest in precious metal markets.

Chart of the week
Frank Holmes, CEO and Chief Investment Officer at US Global Investors, published a market update recently, titled: “Gold Shines as Homebuying Affordability Hits a Record Low.” The article looked at how expensive real estate in the United States has become, with analysis from Redfin suggesting barely 15% of home sales in the United States that took place in 2023 were deemed affordable for the average US household. Ten years ago, the number was closer to 50%, with higher prices, and more importantly, soaring mortgage rates the culprit.

Turning to gold, Holmes included the chart below, and noted that; “against this backdrop, gold has performed very well, touching a new record high of $2,195 per ounce. Fuelled by growing investor confidence in a potential rate cut and a weakening U.S. dollar, the yellow metal has surpassed key resistance levels, exhibiting bullish momentum.

The chart is noteworthy as it highlights the clear uptrend not only in the spot price of gold (yellow line) but the increase in the 50 and 200-day moving averages. At present, those numbers sit at USD $2,060oz (50 day) and $1,983oz (200 day).

These price levels can be expected to provide solid support in any correction or consolidation gold goes through.

Holmes went on to note that: _“global central bank demand for gold has shown no signs of abating, while a potential rebound in demand from gold-related exchange-traded funds (ETFs) could provide additional support for the precious metal. While the U.S. stock market’s solid performance and interest rates above 5% may raise questions about the allure of non-interest-bearing gold, the potential for a reversion in these assets could partially explain the metal’s record and near-record-high prices. Historically, wars have been catalysts for gold price appreciation, and the current geopolitical landscape appears to be no exception. As investors grapple with the challenges of the current economic landscape, the precious metal’s resilience and potential for further gains may offer a glimmer of hope.
_

Inside the office
Surging gold and silver prices have generated a wave of investors activity at ABC Bullion over the past week, with elevated turnover levels seen online, in phone-based trading and inside our offices Australia wide, including our Global Flagship at 38 Martin Place.

The recent upside momentum in silver has seen demand for ABC Bullion silver cast bars increase, with our signature 1 kilo ABC Bullion silver cast bar proving the most popular, while 1oz silver Kruggerand coins, which remain on sale for a flat $2oz above spot are also selling fast.

We’ve also seen an uptick in demand from SMSF trustees and other HNW investors, who often have a preference for pool allocated gold and silver, while in store, demand for ½ ounce ABC Bullion gold cast bars is surging.

Buybacks of precious metals also remain at elevated levels, something we expect to continue given the current price strength we are seeing in the market.

Jordan Eliseo
General Manager
ABC Bullion Australia

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