Crucial Week for Gold

Gold prices held steady on Monday morning as markets, in general, seem to be in an optimistic holding pattern ahead of another big week of earnings reports, this time accompanied by some key macroeconomic inputs. Gold picked up roughly $5/oz after the global markets reopened on Sunday evening, and stabilised during Monday's trading sessions.

Gold prices have been supported by the recent demand from India (according to the bullion dealers in India) and China, regardless of how weak the U.S. dollar and the retreating Treasury yield is.

The Chinese demand for gold and gold RSBL coins at current levels is no doubt helping support prices, with the PBOC stepping up quotas for gold imports. The local premium above spot still remains at around $7 to $9 an ounce, which could be impacting local availability of gold and gold RSBL coins in Australia, as much of what is produced today may well be heading into that market. Since February 2020 the country has averaged around $600 million a month worth of imports, or circa 10 tonnes, so the new 150 tonnes green light is a significant volume of gold to hit the hungry Chinese market in the months to come.

India’s demand for gold and gold RSBL coins also remains very strong at the current price with record-breaking imports in March of 160 tonnes. Gold shipments from Switzerland to India and China rose last month, indicating renewed buying by the top consumers after a year on the sidelines.

The second wave has been pushing economies back to sluggish growth and stricter lockdowns. Any hindrance in growth will lead to a weaker US dollar and stronger yellow metal. The bullion is stabilizing near an eight-week high as bond yields trend lower, lifting the appeal of the non-interest bearing precious metal.

Increasing covid-19 cases in some parts of the world have raised concerns over the pace of global growth, although stimulus measures remain in place. If the economic situation worsens again, the Fed might be forced to pump more money into the system, altering the hawkish outlook. In that case, gold and gold RSBL coins would most likely breach the current record highs above 2,000 USD.

However, there are bearish sentiments also that prevail in the market over the following - 

• The view that any spike in inflation is likely to be transitory and that the Fed will keep interest rates lower for a longer period extended some support to the dollar-denominated commodity and helped limit any deeper losses, rather assisted to regain some positive traction on the first day of a new trading week. That said, the upside is likely to remain capped as investors might prefer to wait on the sidelines ahead of the latest FOMC monetary policy update, scheduled to be announced on Wednesday.
• All the money printing and inflation are probably priced in, as evident from gold’s rise from 1,400 to 2,000 USD, with investors now being forward-looking and gold dealers in India waiting on that. They see one more year of ultra-loose monetary policy, and then the Fed will need to start hiking rates and taper the QE. Both hawkish actions could come even sooner than 2022.

Should this outlook stay in place, the upside for gold is probably limited.

Moving on to this week, it is going to be an important week for gold with key data to be watched over the coming days -

1. FOMC Meet - The main economic event of the week will be the Federal Reserve’s Open Market Committee (FOMC) meeting that will commence on Tuesday morning and will end on Wednesday afternoon with a statement and press conference from Fed Chair Powell. While there is no expected change in the U.S. monetary policy, the marketplace will closely scrutinize the Fed’s inflation outlook and any comments on the future path of monetary policy. Wednesday’s FOMC meeting and press conference will be followed by a first read on Q1 economic growth on Thursday morning and then the Fed’s report on consumer price inflation.
2. Capital gain taxes - President Biden will address a joint session of Congress where he is expected to lay out the Administration’s plan for an increase to capital gains taxes for the wealthiest Americans. We’ll be watching to see if the formal announcement will stumble the markets similar to what happened last week.

Important data to watch out for-

• EDT/GDP Growth
• Initial jobless claims
• PCE Price Index

With such a crucial week ahead, investors will all be glued to all the important numbers coming in. And on the other hand, the top gold dealers in India and largest bullion dealers in India will wait for investors to make their decisions and pounce on them. Wait and watch is all that we can say.

China On A Gold Buying Spree

 All over the world, economies are improving and stimulus measure is helping to get things back on the growth track. But all this is not as easy as it seems. The main reason behind this recovery is fiscal stimulus. Any dort of stimulus brings along certain pressures - concerned balance site and budget deficit. This further leads to inflation, in fact, currently, we are expecting the nation to create pressure on the U.S. dollar which will further release bullish sentiments for the precious metal.

Although gold prices have struggled in the last seven months, the precious metal still plays an important role in a portfolio. Gold remains to be an attractive safe-haven asset as real interest rates remain near historically low levels.

The precious metal and RSBL coins were seen heading to their second consecutive week of gains after a positive start to Q2 amid a weaker U.S. dollar and retreating U.S. 10-year Treasury yield.

It would be sensible for investors to take some defensives positions in their portfolio because of current valuations. The U.S. economy is expected to see strong economic growth this year. So, fundamentally, equity markets have room to go higher and hence there should be a balanced portfolio allocation.

The growth that we are seeing in equities is being supported by stimulus, earnings and by the recovery of global economies. But this growth won’t come alone, it will definitely bring some volatility along with it. But this volatile situation would be a great opportunity to park investment into portfolio risk hedges like commodities. Some players believe that it is just the right time to jump into the market and make the most of this opportunity and reach out to the top gold dealers in India and the largest bullion dealers in India. 

While talking about portfolio allocation, there is this huge superpower that aims to pile up reserves to the best possible strength. China has cleared the way for a massive surge of gold and gold coin imports into the country. An exclusive report from Reuters suggested about 150 tonnes of gold (worth $8.5 billion at current prices) is likely to be shipped into China following the green light from Beijing. This information was revealed by four different sources that China has permitted domestic and international banks to import large amounts of gold into the country.

China is in the race to build up its reserves. In fact, analysts say that tonnes of gold in China still stands unreported. Of the official numbers, it is believed that in 2019, China's gold imports ran at about $3.5 billion a month, or roughly 75 tonnes.

The report quoting two people said the gold would be shipped in April and the other two said it would arrive over April and May. China brings in the bulk of its gold from South Africa, Switzerland, and Australia. China has, on average, imported gold worth about $600 million a month, or roughly 10 tonnes. The move, cited by the news agency, is "potentially helping to support global gold prices after months of declines."

China is the world's biggest gold consumer, gobbling up hundreds of tonnes of the precious metal worth tens of billions of dollars each year, but its imports plunged as the coronavirus spread and local demand dried up. The main reason behind this purchase is to revive the dampened gold market.

A fair recovery in gold demand this year will require a generally much higher level of gold import. Next week also marks the Federal Reserve media blackout period ahead of its monetary policy announcement on April 28. ING said that no additional Fed speakers could mean a weaker U.S. dollar, which is beneficial for gold. A quieter week for U.S. data and the Fed in the blackout period could favour a continuation of benign market trends and a slightly weaker US and stronger yellow metal. On one hand, we have gradual growth, speedy jab drives and on the other hand, we see a second Covid wave engulfing the world.

Too much happening globally. In this current environment, with so many unknown factors impacting investment strategies, it is advisable for investors to remain actively involved with their portfolios and remain calm and balanced.

Investors Pull Out From Gold And Pool In Other Assets

 Compared to last year, the first quarter wasn’t that interesting for gold. However, the yellow metal showed a decent start to the second quarter. Gold prices were seen moving up around  1.5% last week. It ended close to the $1760 an ounce, we closed for the week. As the week opened, Gold prices fell on Monday, weighed down by firmer U.S. Treasury yields and dollar after better than expected U.S. economic data lifted prospects for higher inflation. Spot gold fell 0.2% to $1,739.20 per ounce.

Stronger than expected data suggests that inflation (will be) picking up faster than expected in months to come, which is leading to a rise in real yields, exerting pressure on gold. If we do get flaming inflation readings next week, it could be a catalyst for higher Treasury yields, which would be bad for gold. But once we pass that event and if gold would still near $1,750, that would be a green light for prices to rise higher. There could be more upside potential for gold after the CPI data.

The gold dealers in India remain optimistic as the gold prices might have already hit their bottom in the first quarter of this year. In that case, we can expect a favourable environment for gold to rose. The Fed removed the big risk as far as yields surging. This will act in favour of the yellow metal. And even though we might not see the August record highs, gold could make a move towards $2,000 again.

We have a line up of data releases this week, which might catch investors attention-

• CPI
• U.S. jobless claims
• Retail sales
• NY Empire State manufacturing index
• Philadelphia Fed manufacturing index
• Industrial production

Other supportive drivers for gold are- 

Stronger physical demand - Since the onset of the pandemic, gold has also seen an uptrend. A few minor drops were witnessed, but overall it has been a green zone gold. High demands amongst the Chinese and Indian coupled with renewed interest from central banks have all delivered sufficient support for the yellow metal.

Piling gold reserves by central banks - With 2021, the gold dealers in India and largest bullion dealers in India expect that the new year will bring a global economic rebound, "The possibility of capital inflows into emerging markets and the low interest-rate environment may lead to central banks adding gold for diversification purposes The breadth of central banks purchasing gold could potentially rise substantially considering the massive increase in sovereign debt and the rapid pace of money supply growth in reserve currency countries. A sustained rise in official interest could provide further support for the yellow metal.

Furthermore, domestically, the top gold dealers in India are expecting that Gold and Silver could become expensive from the current levels on two counts. With the international prices going up, the resurgence of the Coronavirus Pandemic could drift investments towards this haven, resulting in the increasing demand for gold.

However, we still find some players in the market who are pulling out from gold and pooling into equities, cryptos and other asset forms. But as many say that crypto is a bubble and if this bubble pops then it will be a huge and significant game changer for gold. But to be sure, this is technically not possible. All we can say is that if at all the bubble bursts then $2250 an ounce for gold will be a cakewalk.

Gold Loses Shine But Later Gains Lustre

 Gold was seen gearing up for another leg to the upside, as the bulls extended the recovery from three-week troughs of $1677.

Bullion has clawed back some ground after dropping last week to near the lowest level since June, with recent movements largely being dictated by the direction of bond yields

The weakness in the US dollar and Treasury yields continued to lend support. However; traders believe that the improved market mood on the economic optimism plays could likely play a spoilsport.

Gold steadied as investors weighed signs of an economic rebound amid better-than-expected U.S. jobs data against the implications of President Joe Biden’s spending plans.

U.S. employers added the most jobs in seven months with improvement across most industries in March, as more vaccinations and fewer business restrictions supercharged the labour market recovery.

The U.S. economy created the most jobs in seven months in March as more Americans got vaccinated and the government doled out additional pandemic relief money.

• Nonfarm payrolls increased by 916,000 last month
• February employment was revised up to a 468,000

Following these data numbers, gold dealers in India witnessed the first quarterly drop in the price of gold since 2018. A growing economic recovery and rising bond yields created bearish sentiments for the yellow metal.

We’ve already seen a $1.9 trillion helicopter money drop this year, and the Biden administration appears just to be getting started.

The latest reading of the government’s CPI (Consumer Price Index) continues to suggest that inflation so far remains low. Even if we do experience high inflation, government officials continue to assure, it will be transitory. Despite these weak guarantees, the financial establishment is starting to sound the alarm.

U.S. President Joe Biden's announcement of a long-awaited $2 trillion-plus job plan last week has raised some concerns over inflation.

The ongoing threat of inflation – and actual inflation – will result in more buying of gold, silver, and other hard assets. Especially since Fed Chief Jerome Powell has said that the central bank would be happy to allow inflation to persist for a while before taking any action.

This means that the central bankers will not hike interest rates or pull back bond purchases to slow things down. And when government-reported inflation rises well above 2%, while interest rates remain at lower levels, the resulting negative real interest rates will support gold prices.

This inflationary scare comes at a time when the government is allowing running free massive stimulus measures to bail out states, businesses, and consumers – all in the name of combating the pandemic.

During these times, some investors view gold as a hedge against inflation and hence the drop was not much lived.

Gold once again gained momentum as this week opened, over the following reasons – 

Yields- The benchmark 10-year US Treasury yields have slid below 1.7% after rising to the highest level seen in 14 months over the past few sessions. This has also turned the dollar bearish, sending it to an almost two week low against most of its major rivals. While lower bond yields decrease the opportunity cost of bullion and make it more appealing as an investment, a weaker dollar drives up purchases of gold and gold coins in Mumbai by holders of other currencies, helping push up its demand as a result.

Corporate taxes- The yellow metal is also trading bullish on the rising prospects for higher corporate taxes in the US after President Biden stood by this proposal as a way to pay for the recently announced $2 trillion infrastructure plan. Additionally, the precious metal’s safe-haven appeal also enjoyed support from recent comments from Cleveland Fed President Loretta Mester on the central bank’s plans to remain dovish to boost economic growth further.

Meanwhile, traders are also watching the progress of debate over Biden’s $2.25 trillion infrastructure proposal, as Republicans expressed guarded support for a more limited plan. Any progress in these talks will directly affect gold and gold coins in India. Whether on the upside or downside- we need to wait and watch!

Covid has become avid

Recently we have seen gold coming under pressure. Even officials from the US government and central bank anticipate the economy to post a swift recovery, boosted by strong COVID-19 vaccine rollout programs and multiple rounds of fiscal stimulus. 

Top gold dealers all over India agree that there is optimism in the markets about improved economic outlook. This positivity is further supported by an improvement in consumer spending, which in turn would hike up inflation – one of the main reasons that have been strengthening US Treasury yields.

On March 29, gold and silver plunged again amid strength in the dollar index. Both the precious metals settled on a weaker note in the international markets. Gold made a swift move to $1744 from its base of $1728 last week on Thursday evening but later the pressure of rising USD Index towards 93 killed all the gains. Now the 10y and 30y finds key barrier of 1.65 and 2.40 respectively.

The dollar index gained again and traded at four and a half months highs and inched closer towards the 93-mark, pushing the yellow metal lower. Strength in the dollar index triggered selling in both the precious metals.

Gold extended its biggest fall in more than three weeks as President Joe Biden prepared to unveil big spending plans after announcing major progress on rolling out vaccines. Biden said 90% of U.S. adults will be eligible for Covid-19 vaccines by April 19, boosting risk appetites even as they linger around new strains of the virus. The president will also this week unveil major plans to reboot the U.S. economy and boost employment.

Analysts at RiddiSiddhi Bullions Limited suggested that gold is heading for its first quarterly decline since 2018 as a budding global recovery reduces the safe-haven’s appeal. A stronger-than-expected dollar and increasing bond rates have also pulled bullion down from its record high in August last year.

In a speech on Wednesday, Biden is expected to focus on infrastructure as his administration aims to reshape the post-pandemic U.S. economy and government

The US also recorded a jobless claims figure of 684,000 for the week before last – the first reading below 700,000 since the pandemic sparked mass layoffs last year. This further boosted the dollar in one of its better recent weeks.

In another busy week for FX markets, the US dollar benefitted from its ‘safe haven’ status amid crises in Turkey and on the Suez Canal.

Last week started with news that Turkey’s President Recap Erdogan had sacked the country’s Central Bank governor Naci Agdal for raising interest rates to check inflation and to support the Turkish lira. He was the third Central Bank chief to be sacked since 2019.

The removal of Agdal from office led to “risk-off” dollar buying as the value of the lira against the dollar fell by approximately 12%.

Furthermore, the MV Ever Given has caught up attention all over in the media – a 400-metre, 200,000-tonne cargo ship that got stuck across the Suez Canal. 

With roughly 250 ships stacked on either side of the blockage and a reported $15bn worth of goods on board, there were worries that disrupted trade flows could disrupt international recoveries from the Covid-19 pandemic.

Analysts have also forecast further bearishness in sight for the precious metal on the back of rising hopes for global economic recovery. However, gold prices are likely to enjoy some support from the latest wave of the pandemic that has sent parts of Europe back into lockdown mode even as emerging markets like Brazil and India are also reporting a spike in fresh infections confirmed a spokesperson from RSBL.

Experts say the yellow metal could remain volatile amid strength in the dollar index and a rise in the US bond yields could weigh on the precious metal

The monthly U.S. non-farm payrolls report will be closely watched at the end of this week, with Federal Reserve policymakers so far citing slack in the labor market for their continued lower-for-longer stance on interest rates.

“In a week when the market is feeling so optimistic about the forthcoming payrolls release, it seems very likely that the greenback will find strong support.

Further strength in the dollar index could push gold prices below $1,700 per troy ounce this week. We expect precious metals to remain volatile this week.