Gold rallying on the road to new highs

Jul 22, 2023

According to the ABC Bullion, in this week’s[ July 17 to July 21]  market trend for gold prices rallied again, increasing by another 1%, with the precious metal last trading at USD $1,968 per troy ounce (oz). Silver was also higher, at one point trading back above USD $25oz, with the precious metals up 2%, helping push the gold to silver ratio (GSR) back toward 80.

Currency and equity markets were relatively quiet, with the US Dollar Index (DXY) reclaiming the 100 level, for now at least while both the S&P 500 and ASX 200 were +1% over the past five trading days.

Risk in back in the cryptocurrency space, with Bitcoin off 6% and back below USD $30,000 per coin, despite the best attempts of certain promoters, which of late include Blackrock, to promote it as digital gold. Bond markets also traded in a relatively narrow range, with Australian 10-year yields edging back above 4%, with stronger than expected employment data suggesting the RBA may indeed hike rates again as soon as August.

In the row, Colin Shah, MD, Kama Jewelry- India said; “The downward spiral in gold prices continued but the fall was marginal prices were lower by 0.02% a slight decrease from the previous week. However, the dip was considerably better than the 1% drop from the week prior.

On the other hand gold prices rose to Rs 59543.00/ 10 Gms in the domestic market. Internationally, gold continues to trade at $1,968.30 per ounce. A minor pullback in the currency rate of the US dollar has led to some optimism amongst Gold buyers.

In the domestic market, there seems to be a bit of a worry with regard to data projecting a fall this fiscal year in exportation by approximately 10 – 15% this fiscal year. However, with the onset of coming festivities, there seems to be optimism in the rise of purchases towards the end of H2 2023.”

ABC Bullion said, Sentiment lukewarm despite gold rally! Precious metal prices have continued to rally over the past five trading days, with gold and silver up 1% and 2% respectively in USD terms. Silver, which at one point traded above USD $25oz this week, has been particularly strong of late, with the gold to silver ratio (GSR) declining from 85 to 80 in the past month with silver rallying by 9% over this time period.

This is an encouraging sign given silver outperformance is typically a precondition of any fully fledged precious metal bull market.

This recent spike in metals prices, which has put gold within circa 5% of its all-time high in both USD and AUD terms, has seen a range of bullish forecasts come to the fore, with Citi potentially seeing gold head toward USD $2,150oz in H1 2024. Including from WisdomTree, who believe gold is on track to hit $2,225oz within a year, according to Nitesh Shah, their head of commodities and economic research.

Invesco’s Paul Syms, head of EMEA ETF fixed income and commodity product management was even more bullish, noting that: “We believe gold remains an asset worth holding especially given uncertainties around the US debt ceiling, any further banking crisis, a correction in stock markets, escalation in the war or countless other geopolitical concerns.”

He went on to note that; “If the Fed begins monetary expansion by autumn 2023, bond yields will be falling and, assuming it moves before the European Central Bank and other major central banks, we could see the US dollar depreciate at a faster rate.

We assume inflation will be stronger than in the consensus scenario as a result of the Fed loosening monetary conditions. Assuming that the recession fears that the Fed is responding to are real, we expect positioning in gold futures to remain elevated.”

Price wise, Syms believes this could see gold reach USD $2,490oz, more than 20% higher than the previous records it has set. Given silver would be expected to outperform in such a scenario, a world of USD $2,500oz gold could see silver trade at between USD $35-$40oz.

So far, this renewed round of bullish commentary toward precious metals isn’t yet being matched by investor flows, with ETF holdings and managed money positioning still neutral at best, as the below chart highlights.

Fund managers are also currently heavily underweight commodities. From a contrarian perspective, this is actually encouraging, as it demonstrates the fact that institutional portfolio managers have significant room to add to gold positioning from current levels.

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