Gold bulls can thank the jewellery business, Asian hoarders and central banks for the steady price consolidation between $1740 and $1830 an ounce. The price jumped to the peak of the range in recent weeks partly because hedge funds were covering futures and options bear positions.
The market has generally been lacklustre in the past few months, considering the acceleration in global inflation. The reason is that investors fear gold will underperform as inflation is already causing a rise interest rates and a stronger US dollar.
Nevertheless, even though hedge, managed futures and exchange traded funds (ETFs) have offloaded gold, central bank treasurers and Asian jewellers and hoarders have supported the market. Central bank purchases doubled to 393 tonnes in the first nine months of this year and appears to be on course to reach almost 500 tonnes by the end of December, estimates the World Gold Council (WGC). As at the end of September total global central bank gold holdings amounted to 35,582 tonnes. Russia, China and Turkey have been big buyers for geopolitical strategic reasons.
Jewellery demand revives, but still well below former peaks
The Council, a producers’ association, also calculates that global jewellery demand surged by 50 per cent in the first three quarter 2021 and could end the year at 1,750 tonnes. This would be below pre-pandemic levels, but is still an impressive number and should continue to recover as vaccinations increase and lockdowns relax.
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According to a report of Kitco, bears include Georgette Boele, senior FX & precious metals strategist for ABN Amro and JP Morgan. They foirecast that gold will penetrate the lower support level of $1740 an ounce and tumble to $1500 to $1600.
On the other hand several banks see gold prices trading in a wide range of $1,800 to$2,000. Goldman Sachs and Wells Fargo are the most optimistic, with its analysts predicting more than $2,000 an ounce by the end of the year.
Pierre Lasonde, former chairman of Franco Nevada and Newmont contends that despite proclamations extensive debt will force the US Fed and other central banks to keep rates relatively low. His forecast is that gold will rise past the 2020 peak of 2,070 during 2023.
Observe the consolidation (Source IT Finance)
Asians bargain hunt when the price declines
Asian jewellery buyers and hoarders, especially in the large China and India markets, tend to bargain hunt whenever the gold price slips. China’s gold jewellery consumption reached 157 tonnes in the third quarter of 2021, 7 per cent higher than the previous three months and 32 per cent higher than the same period in 2020. In the first nine months demand already exceeded 2020. Bar and coin sales were up by 12 per cent year on year to 65 tonnes, continuing a robust year. The WGC cautions, however, that there are challenges due to the nation’s economic slowdown.
Third quarter Indian jewellery buying rose by 60 per cent year on year to 100 tonnes because of pent up demand, a rebound in the economy. The purchases were back to levels in 2019. Bar and coin investment was up by 43 per cent.
ASEAN gold jewellery consumption, hoarding and other investment was mixed, according to Andrew Naylor, head of the WGC’s Asean division. Albeit much smaller outlets in the global market, jewellery purchases were 46 per cent higher year on year in Indonesia and 39 per cent up in Thailand. Covid, however caused a drop in sales in Vietnam and Singapore, he disclosed. Similar ASEAN trends were apparent in coin and bar hoarding but on a very small scale compared to the entire market. The market was buoyant in Japan and South Korea, however.
In contrast to Asians, US managed funds have tended to trade bullion.
As soon as the price rises above $1800 an ounce hedge and commodity funds tend to sell. December Figures from the US Commodity Futures Trading Association show that net long (bull positions) of mainly US managed futures and hedge funds reached 886 tonnes at end of February 2020. They then fell to 539 tonnes when gold peaked at $2070 an ounce in August 2020 and have fallen to only 263 tonnes as at December 21.
Meanwhile disenchanted ETF holders who bought when gold was close to its peak in July and August in 2020 have cut their holdings. Year-to-December 17, net outflows totalled 166 tonnes – the largest since 2013. Total ETF gold holdings amounted to 3,577 tonnes, 11 per cent below the 2020 peak of almost 4,000 tonnes when US and other investors were piling into bullion.
© copyright Neil Behrmann.(https://neilbehrmann.net) This article was first published in The Business Times Singapore . For other Asian and global articles try https://subscribe.sph.com.sg/publications-bt/